About this site

Friday, September 4, 2009

Harris & Ewing Less Taxes January 18, 1939Washington, D.C. "'Less taxes, more jobs' reads the poster being pasted up by George H. Davis. It is the first of 25,000 such signs which will be put up all over the nation as part of a drive for reduction in taxes by the U.S. Chamber of Commerce. President Davis called in the photographers today to see the first one done right."

Ilargi: An article at the excellent MyBudget360 site says Californians may soon be able to claim 92 weeks of unemployment benefits. The beyond bankrupt state already pays out $80 million in unemployment insurance per day!.

"So far this year California has dished out some $11 billion in unemployment insurance. This is the biggest amount on record, dwarfing the previous record set last year at $8.1 billion."

While that may sound like a lot of money, in actual fact 365 days of $80 million really adds up to almost $30 billion. California has a $60 billion hole in its budget this year. Looks like that hole is about to get a whole lot bigger.

A judge in Rhode Island has refused to block that state governor's plan to shut down the government on selected days. Seeing that, I was thinking that the union that asked the judge for the decision must have no idea what's coming for its members. A few days of unpaid leave is hardly the worst thing that is going to happen.

As I was reading these things, I figured it might be a good idea to take a look around for more news on state budget problems. Part of me wishes I'd never had that brilliant thought. Within minutes I had some 40 articles lined up, just from one day. I stopped looking, but there's no doubt I could have gathered dozens more where that came from.

I first started talking about these developments years ago, it was very obvious what was coming. This budget year, the mayhem has started for real, and it's really only beginning.

At state level, a mountain of trouble is brewing in America.

A few random thoughts when reading the articles:

There are lots of political fights ongoing. Having to cut budgets will do that for you. Several states have seen their budget problems taken to court. In some cases, parties are rolling over the floor for budget cuts of 2-3-4 percentage points. Whoever is involved in any of those fights is up for a rude sunrise, since in many cases, tax revenues are already off by 10-20%. I haven't seen one state that doesn't admit to at least a few hundred million in budget deficits, with losses predicted to grow rapidly in years to come.

In some cases, it's so hard to agree on a budget that deadlocks often last for months. Connecticut and Pennsylvania still don’t have a deal. Connecticut's governor will likely pass the budget without signing it. Without a budget in place on a set date, state lockdown often automatically follows.

At this point, many states still have rainy day funds. But they are limited and depleting fast. And the chances of tax revenues increasing are slim, in the face of rising unemployment numbers, while those same numbers foretell rising expenditures for benefits.

There is no doubt that all states, with perhaps 1 or 2 exceptions, will go into the next fiscal year with a budget that is far too optimistic. This is how politics works. Whatever can be made tomorrow's problem will be. And tomorrow's problems are set to be huge.

In a typical example, Arizona, like many states, is bound by law to balance its budget, but still came up with a $500 million shortfall over the past fiscal year. From a legal point of view, that is very thin ice. From a financial one, it's a nightmare.

States will increasingly try to push their troubles onto counties, who in turn will lean on municipalities. This will lead to a slew of lawsuits, which will paralyze decision making and cause a lot of bad blood. Politicians won't be looking to tackle the issues as best they can, they will try to handle them in such a way that their chances for (re-)election don't get hurt. This is a surefire recipe for wrong decisions if ever there was one.

State leaders are reluctant to lay off their employees. It’s bad politics. It’s much less damaging for their careers to cut funding for the sick, the old, the young, the handicapped and the homeless, who either don't vote or are unlikely to change their voting habits and even more importantly have no unions to raise a racket on their account. That is why they will be the first victims of the cuts, along with schools and their students, health care services etc.

We are about to see a huge increase in the issuance of state bonds and other forms of borrowing. Kicking all your cans down all the roads that you can find. Many states are in the process of opening some kind of gambling den or another.

And then down the line will come the tax increases, stealthily at first, more openly later. But raising taxes on a population that is getting poorer fast is a stillborn idea, especially at the lower levels of government, where people know where you live.

To understand the underlying justification for budget cuts that are way too meagre, for not properly tackling problems and for issuing even more debt, you only need to look at the White House and its message of recovery and 3.5%-4% economic growth right around the corner. That message undermines the need for more unpopular measures at the state level, even as revenues are falling much faster than that.

Even if those predictions would come true, states' financial problems will persist for many years. If the predictions turn out to be too optimistic, the ensuing mess for the states will be hard to oversee. Politics trumps sound decision making. Looks like time to start culling the herd.

There is of course much more to say on the subject. And I will. For now, though, here's a few articles on the topic for your reading pleasure:

[..] earlier this week 143,000 unemployed Californians exhausted their unemployment benefits. Now, you might think that this is simply a function of a normal recession. It is not. In fact, many of these people have exhausted their 26 weeks of benefits plus three additional extensions.

Another bill has been introduced to extend benefits for a fourth extension bringing the amount of unemployment insurance available for up to 92 weeks! This is no minor recession but a major economic shift in our economy. Without the extension being passed there will be 264,000 Californians with no unemployment insurance by the end of the year.

So far this year California has dished out some $11 billion in unemployment insurance. This is the biggest amount on record, dwarfing the previous record set last year at $8.1 billion.

Weekly benefits range from $65 on the lower end all the way up to $475. The insurance people receive depends on their previous income. The average weekly amount is $319.

Furloughs may provide a political benefit to politicians who must placate powerful unions while dealing with taxpayers who fume that government employees haven't shared the pain of a recession that has cost more than six million private-sector jobs. Government jobs have traditionally been an island of stability during recessions, and states kept adding workers well after the recession began at the end of 2007. But since August 2008, states have shed about 33,000 jobs, according to data from the federal Bureau of Labor Statistics. Experts say more layoffs are inevitable. Furloughs have already affected hundreds of thousands of workers -- more than 200,000 in California alone.

More than 20 states have considered forcing employees to take unpaid furlough days, according to anecdotal reports as well as data compiled by the National Conference of State Legislatures, which says it is too early to calculate exactly how much these moves save the states. About five million Americans work for state governments, according to federal statistics, from colleges and prisons to public hospitals, parks and all kinds of administrative offices. In some states, labor unions have turned to the courts to try to stop shutdowns.

Rhode Island residents looking to renew their drivers licenses, get help claiming unemployment benefits or even go golfing could face closed doors Friday after a judge cleared the way for Gov. Don Carcieri to shut down most of the state government. Unions representing nearly 13,000 state workers are seeking to stop the shutdown day, the first of a dozen planned by Mr. Carcieri. Superior Court Judge Michael Silverstein on Thursday refused their request to do so, instead ordering both sides into arbitration, a process that could take two months or more. A state Supreme Court justice planned to hear an appeal from the unions Thursday afternoon.

Mr. Carcieri, who didn't immediately comment on Judge Silverstein's ruling, ordered the shutdowns to help close a $68 million shortfall in a state budget hammered by surging unemployment and dwindling state tax revenue. The shutdowns will require all but essential workers to stay home without pay, or about 80% of the state's work force. "We want to stop the shutdowns and go to arbitration," said Brendan Fogarty, president of Local 400, whose union represents employees from the departments of transportation, environmental management and administration. "We don't want our members to not get paid while we wait for the decision."

Big ol’ honkin’ crocodile tears: Those are what our state legislators have been shedding with regard to passing their smoke-and-mirrors budget. "We’ve had to make the hard decisions," they bemoan with grimly set mouths.

I don’t buy that for a second; it’s simply not true. As education, health and human services are slashed this year because of poor stewardship in Sacramento, the Legislature gives a pass on levying a California oil extraction tax, the only oil-producing state in the nation not to have one.

In fact, the Fair Political Practices Commission said in early August that state officials had fattened their lobby-stuffed coffers by more than $60 million through fundraisers in the first half of 2009 — and it’s not even an election year. No, our solons in Sacramento are taking the money and making the tough decisions to balance the budget on the backs of their least powerful constituents, those without lobbies: the young, old and infirm.

Connecticut's state budget is to take effect Sunday because Gov. M. Jodi Rell is reluctantly letting it become law without her signature. Rell criticized the budget as calling for more borrowing and vague plans for future spending. But the governor said she would allow it to become law because Connecticut residents were feeling the effects of the budget stalemate.

"This economy has forced residents to trim their budgets, to change the way they live their lives. Their government should face the same reality."

[Stripp] claimed the Democratic-approved budget "is built on unprecedented levels of debt, gimmicks and holes that will require even more taxes in the near future." According to Stripp, the budget passed by the legislature includes $1.5 billion in tax increases, borrowing $2 billion to plug holes in the next two years, emptying the $1.4 billion rainy day account, and counting on $1.5 billion in federal stimulus money. The state’s current budget deficit is estimated to be about $8 billion.

Baltimore County will lose 90 percent of the state aid that pays for highway construction and road maintenance as part of an effort to close an estimated $740 million deficit in this year's Maryland budget. The rest of the county cuts will come from aid to police, the health department and the Community College of Baltimore County. The state Board of Public Works unanimously approved Gov. Martin O'Malley's proposed $450 million in cuts to the state budget Aug. 26. Included are the elimination of 364 state jobs and the imposition of up to 10 furlough days for state employees.

The state budget gap is big -- $2.1 billion -- but county executives from across the state are warning legislators not to pass that burden down to the counties. "Should they propose cutting spending, we will stand with them," said Stephen Acquario, executive director of the New York State Association of Counties. "If they propose cost shifting to county property tax payers, we will not and we will fight these proposals."

A program that helps thousands of Connecticut welfare recipients find work has been in limbo for two months. Family resource centers, which provide child care, adult education, and other services, have shut their doors. In Pennsylvania, day-care centers have laid off workers. Some preschool programs are scrapping plans to reopen in September. And tens of thousands of state employees had to wait to be paid for several weeks.

While most states have already passed their budgets, Connecticut and Pennsylvania remain the only two in the nation still at odds over how to balance the books this fiscal year amid plummeting state revenues. Connecticut's revenue flow has dropped by $2 billion from last year while Pennsylvania's came in $3.3 billion less than expected.

Florida chief economist Amy Baker is friendly and quick with a smile, but her messages tend to be real downers. So it went Thursday, when Baker told the Legislative Budget Commission that the coming year's budget faces a potential gap of $923 million, and by 2011-12 when federal stimulus dollars dry up, the hole could be as big as $2.3 billion.

Credit a still-weak economy and real estate market, combined with increasing needs in areas like health care and other state-funded services. Baker used terms like "massive wealth destruction" to describe the affect of the recession and plummeting home values on Floridians and the state economy. She gave scary stats like the median price of a home going from $250,000 to $147,000. Oh, and she said to brace for more high unemployment numbers.

Gov. Ted Strickland’s bid to install video slot machines at Ohio’s horse-racing tracks has been hit by another legal challenge, with U.S. Sen. George Voinovich, R-Ohio, joining those against the plan. The Ohio Roundtable, a conservative public policy organization based in suburban Cleveland, filed a lawsuit Thursday against the slots plan, asking the Ohio Supreme Court to declare it unconstitutional. The suit challenges Strickland’s plan to install 17,500 slot machines at seven racetracks through an expansion of the Ohio lottery. The plan, estimated to raise $933 million for state coffers through June 2011, was included in a two-year state budget bill passed by the Ohio General Assembly in July.

State budget talks continued for another day in Lansing. But there's still no resolution to the $3 billion deficit. Governor Granholm huddled with the Legislature's Republican and Democratic leaders for most of the day. They were joined by some business leaders to help facilitate the negotiations. They shared some ideas on long-term cost savings.

Republican and democratic leaders are meeting at the State Capitol, now in the tenth hour of a marathon negotiating session. They're trying to dig the state out of its 3 billion dollar deficit. It's a story 6 News has been keeping a close eye on. The speaker of the house, the majority leader in the senate and the governor are still talking behind closed doors. They've been negotiating since 9am and they're scheduled to go until 9pm. A lot hinges on these negotiations. As you know, the clock is ticking. We've got just days now to get a budget passed or state government will shut down.

A coalition of social service, education and labor groups called on state officials Wednesday to raise $2.1 billion more in taxes and end $600 million in tax exemptions to avoid deep cuts in the budget that starts Oct. 1. Michigan faces at least a $2.7 billion budget deficit in the upcoming budget year. It will be able to fill some of its budget shortfall with federal recovery money, but those calling for increases say the state needs to make long-term changes to its tax structure to avoid future deficits.

A 4 percent across-the-board cut to South Carolina’s budget could mean more cuts for area school districts. But decisions on what cuts will be made might not trickle down to districts for the next two to three weeks, officials said. Schools, colleges, prisons and other state agencies lost 4 percent of their budgets Thursday as South Carolina’s financial oversight board dealt with lagging tax collections. The five-member Budget and Control Board, meeting in Columbia, agreed to trim $200.5 million from a $5.7 billion budget. That included $85 million from the Department of Education.

Mississippi Gov. Haley Barbour on Thursday ordered budget cuts for some state programs, including all levels of education, because state tax collections were sluggish during the first two months of the fiscal year. Barbour ordered cuts of $171.9 million in a $6 billion budget. That's about 2.9 percent of the overall spending plan. Some programs will remain untouched, while others are being asked to save up to 5 percent.

The governor tells agencies how much money they're losing, but it's up to the agencies' executives to decide which services to shrink or eliminate. Barbour said it's easier for them to do that early in the fiscal year rather than late. "We've got a budget storm on the horizon," Barbour said during a news conference Thursday. "We can't avoid the storm. We know the best thing is to prepare early, act early."

Governor Gary Herbert has organized a commission to take a fresh look at state budget cuts to bridge what could be an $800 million shortfall next year. And unlike his predecessor, Governor Jon Huntsman, he’s not promising to avoid cuts to public education and critical human services. "Nothing should be off the table, we ought to look for ways to be efficient as we possibly can with the taxpayers’ dollar," Herbert says. "That’s why it’s called optimization here of government services."

Idaho is facing a $151.4 million tax revenue shortfall in the current budget year, according to a new state forecast, and state leaders will have to decide whether to further slash the state budget or dip into rainy-day funds that now total $274.3 million.

Lawmakers and Gov. Butch Otter have been reluctant to spend much of the state’s reserves, which stood at $391 million before the Legislature convened this year. But they spent nearly a third this year, while also imposing deep cuts in the state budget, including the first-ever cut in state funding for public schools and a 5 percent cut in personnel costs statewide, for all agencies. That’s led to furloughs, layoffs and more; for example, this Friday, the legislative services offices is closed due to staff-wide furloughs.

"We have been here before," Otter said today, in response to the gloomy revenue news. "We have the experience, the tools and the commitment needed to address this situation while maintaining necessary public services. We are fortunate to be far better off than most other states [..]"

The moment Gov. Arnold Schwarzenegger signed the new California budget, billions of dollars across the state evaporated from social programs designed to protect society’s most vulnerable — the elderly, the homeless, the disabled. "The whole safety net is thinner," said Avi Rose, director of Jewish Family and Children’s Services of the East Bay. Much of the $16.1 billion California budget reductions were drawn from social programs, such as in-home health care for the elderly or disabled, mental health services, employment services, community clinics and child welfare and foster care programs. The $16.1 billion cuts — combined with $14.9 billion cuts enacted in February, local government funds, tax revenues and federal stimulus dollars — will help close a $60 billion gap in a $198 billion budget.

Arizona's tax revenues continue to drop and the state's economy apparently has not has reached bottom yet, according to a new state report released Monday. The Joint Legislative Budget Committee staff's report showed state tax collections of $573 million in July. That's 10 percent below July 2008 revenue and $33 million below this year's forecast for the month. Of the two biggest revenue sources, sales tax collections for the month were down 18 percent from a year earlier and individual income tax collections were down 11 percent.[..]

Despite a constitutional requirement for a balanced budget, the state on June 30 finished the last fiscal year with a shortfall approaching $500 million. The treasurer has had to borrow hundreds of millions of dollars on a daily basis from a variety of state accounts to cover state operating expenses

Republican legislative leaders called upon Gov. John Lynch to convene a special session to cut spending in a state budget embroiled in a $110 million court dispute and faced with lagging revenues over the past two months. Senate Republican Leader Peter Bragdon, of Milford, and House Republican Leader Sherman Packard, of Londonderry, asked Lynch to release state agency head work papers from last fall that assumed a 3 percent cut in state spending over the next two years.

"We need to come back; we need to make the cuts which we are asking for,'' Packard told reporters. "We are asking for the governor to step up, call us back into special session so we can make the cuts necessary to make.'' The Supreme Court will hear oral arguments Oct. 15 on a lower court ruling that judged as illegal the state budget making use of $110 million in surplus with the Joint Underwriting Association. Bragdon said Lynch's optimism that the state will win the lawsuit doesn't settle the budget dilemma especially with state taxes and fees off forecast by 15 percent or $17.6 million last month.

Job losses moderated in August, but the unemployment rate ticked up 0.3 percentage point to 9.7%, the highest level since June 1983. But another more comprehensive gauge of unemployment ticked up even more. The government’s broader measure, known as the “U-6" for its data classification, hit 16.8% in August, 0.5 percentage points higher than July. The comprehensive measure of labor underutilization accounts for people who have stopped looking for work or who can’t find full-time jobs. The index had declined last month, along with the headline unemployment rate.

That decline was sparked by more people dropping out of the labor force. This month the labor force increased by 73,000 people and the plunge in employment was larger in the household survey, which is used to calculate the jobless rate, than in the payroll survey used to calculate the change in nonfarm payrolls. The U-6 figure is the highest since the Labor Department started this particular data series in 1994. But, similar to the headline unemployment rate, it likely isn’t as bad as it was in the 1980s. U-6 only goes back to 1994, but a discontinued measure has a longer history. That old U-6 measure peaked at 14.3% in 1982. Through some calculation, a comparable measure can be determined in the current report. Under the old U-6 methodology, the August rate would be 13.3%, the highest rate since 1983, but still below the peak.

Still, the elevated U-6 rate gives a clearer picture of the broader employment situation. The 9.7% unemployment rate is calculated based on people who are without jobs, who are available to work and who have actively sought work in the prior four weeks. The “actively looking for work” definition is fairly broad, including people who contacted an employer, employment agency, job center or friends; sent out resumes or filled out applications; or answered or placed ads, among other things.

The U-6 figure includes everyone in the official rate plus “marginally attached workers” — those who are neither working nor looking for work, but say they want a job and have looked for work recently; and people who are employed part-time for economic reasons, meaning they want full-time work but took a part-time schedule instead because that’s all they could find. Many forecasters expect the official unemployment rate to top 10% by the end of this year, and the broader rate could easily top 18%. For people in this group, comparisons to the Great Depression (when 25% of Americans were out of work) may not look so wild even if overall economic activity is holding up better

More Americans than anticipated filed claims for jobless benefits last week, indicating companies remain focused on lowering expenses to preserve profits. Applications fell by 4,000 to 570,000 in the week ended Aug. 29, exceeding the 564,000 median forecast of economists surveyed by Bloomberg News, figures from the Labor Department showed today in Washington. The total number of people collecting unemployment insurance climbed.

The firings are one reason economists project consumer spending, which accounts for 70 percent of the economy, will be slow to strengthen, indicating a recovery will take time to gain speed. Analysts surveyed by Bloomberg forecast a Labor Department report tomorrow will show August payrolls fell by 230,000, the smallest decrease in a year. "We’re past the peak of job losses, but we are likely to see losses for the rest of the year," Anna Piretti, a senior economist at BNP Paribas in New York, said before the report. "Businesses are still in cost-cutting mode and we won’t have an improvement in hiring or personal income" for months to come.

The median claims forecast reflected estimates from 40 economists surveyed. Projections ranged from 550,000 to 580,000. The Labor Department revised the prior week’s applications level up to 574,000 from a previous estimate of 570,000.

The jobless claims report showed the four-week moving average of initial applications, a less volatile measure, climbed to 571,250 last week, the highest level in more than a month, from 567,250. Continuing claims jumped by 92,000 in the week ended Aug. 22 to 6.23 million. The unemployment rate among people eligible for benefits, which tends to track the jobless rate, rose to 4.7 percent in the week ended Aug. 22 from 4.6 percent the prior week. Thirty-two states and territories reported a decrease in claims, while 21 showed an increase. These data are reported with a one-week lag.

Initial jobless claims reflect weekly firings and tend to rise as job growth -- measured by the monthly non-farm payrolls report -- slows. The economy has lost 6.7 million jobs since the recession started in December 2007, the most of any downturn since the Great Depression. Even so, the 247,000 drop in payrolls reported for July was lower than economists projected.

Manufacturers are still cutting staff. Whirlpool Corp., the world’s largest appliance maker, will close its Evansville, Indiana, manufacturing plant, resulting in the elimination of 1,100 jobs as the housing slowdown hurts demand. The job cuts, which represent about 1.6 percent of Whirlpool’s workforce, will occur in 2010, the Benton Harbor, Michigan-based company said Aug. 28 in a statement. Lockheed Martin Corp., the world’s largest defense company, plans to cut about 800 jobs at its Space Systems unit by yearend, the company said in a statement on Aug. 17.

Carmakers are among companies boosting production after a jump in sales following the government’s incentive program helped clear out inventories. General Motors Co. called back 1,350 union workers, its biggest one-time increase in jobs since 2006, partly in response to demand from the government’s "cash for clunkers" program. "We are adding production to almost all of our operations in the United States," Tim Lee, GM group vice president overseeing global manufacturing and labor, said during a conference call on Aug. 18.

The Treasury Department backed away from a standoff over the independence of the special government watchdog appointed to scrutinize how last year's $700 billion financial-industry bailout is being spent. Neil Barofsky, special inspector general for the Troubled Asset Relief Program, a position also known as Sigtarp, declared victory Wednesday in his effort to clarify that he doesn't answer to Treasury Secretary Timothy Geithner.

Mr. Barofsky has gained a reputation for his aggressive posture and demands for information from government officials and Wall Street. The former federal prosecutor is charged with tracking the money spent to prop up the banking system during the financial crisis and to report the results of his audits directly to Congress. In a letter Wednesday to members of Congress, Mr. Barofsky said the Treasury had withdrawn an earlier request to the Justice Department seeking a legal opinion on how much independence the Sigtarp office enjoys. Mr. Barofsky had told lawmakers he feared that being subject to the Treasury secretary's supervision would be "a threat to our independence."

"We view such withdrawal as Treasury's acknowledgment that Sigtarp is an independent entity within Treasury, and that my office and I are not subject to the supervision of the secretary," Mr. Barofsky said in his letter to a group of lawmakers, including Sen. Charles Grassley (R., Iowa) and Rep. Darrell Issa (R., Calif.), who have pushed for his independence. "We applaud Treasury's decision to bring to a close this needless distraction," Mr. Barofsky said.

The Treasury Department declined to explain the reason for the withdrawal of its request to the Justice Department. Sen. Grassley said, "The inspector general is right. It's good that this needless distraction is over." Some lawmakers viewed Treasury's request for a Justice Department ruling as an effort to rein in Mr. Barofsky. "Trying to take away the independence of this oversight reflects the arrogance of officials at Treasury who are wielding immense power over our economy," Rep. Issa said in a statement.

The Sigtarp office, created by Congress when it approved the bailout funds, is part of the Treasury Department and therefore part of the executive branch. But in establishing the office, Congress set strict directives that give Mr. Barofsky broad access to executive-branch documents and require Mr. Geithner to explain if he declines to follow any of Mr. Barofsky's recommendations. That led to constitutional questions over whether Congress violated the separation of powers and invaded the executive branch's turf.

In April, after butting heads with Mr. Barofsky, Treasury officials asked the Justice Department's Office of Legal Counsel for a ruling to clarify that Mr. Barofsky's office falls under the Treasury secretary's supervision. Lawyers in that Justice Department office have traditionally ruled that offices such as Mr. Barofsky's are in the president's line of command. That would mean that the president and the Treasury secretary have the power to fire Mr. Barofsky. The Sigtarp dispute came amid wider tensions over the role of government watchdogs. Three inspectors general have been ousted in recent months, including one fired by President Barack Obama.

Via Paul Kedrosky, Bloomberg columnist Dave Wilson discusses the signs that deflation is significant and its here in this economy, and (as we've discussed) how it explains the simultaneous bond and stock rally

Don’t look now, but September is upon us. And so far, so good. Everything is progressing like clockwork. No humidity. No A/C. Absolutely beautiful. Something like the outer bands of Heaven. It’s also the time of year when the Jenkins family winds up plans for an October vacation. This year my family and I are planning a big trip to Orlando. Can’t wait to go. Hoping the pinched nerve that I have suffered with most of the summer will be under control by then. But as entrancing as all of that news may be, I have something bigger on my mind today.

Setting the Stage: The Big Picture

As just about everyone knows, the stock market crashed in a big way in 1929. Analyst Nick Guarino reminds me that it rallied 15 times before it hit bottom fours years later, having lost 90% of its value. And the truth is, when adjusted for inflation, the market didn’t break even again until 1960. (If you’re a "buy-and-hold" investor, you MUST account for inflation. It is the single biggest "invisible" tax in our wonderful Fed managed economy.)

But before people could get too happy with making money again, along came President Johnson and the "Great Society." I don’t know who it was so great for — the market began crashing again in ’66. Once again, adjusted for inflation, it didn’t get back to breakeven for another 30 years. So, 30 years from the Great Depression to the Great Society. Then 30 years from the Great Society to the Great Depression II. Each of the peaks resulted in 10-15 years of declines. Of course, they didn’t fall straight down. That’s the "trick" of the whole deal.

Each rally draws in a few more people, a little more money, until there are no suckers left. Then when the bottom hits, it has takes 15-20 years to "recover." It will take a very long time to recover from what we’ve been hit with: Exxon/Mobil lost two-thirds of its profits… that’s 66%! The "World’s Company," GE, saw a 47% collapse in profits. Toyota, the recession-impervious carmaker, posted its largest yearly loss EVER and is looking at losses this year, too. Insurers have been hit. Computer giants have taken a whacking. Even Disney is down over 25% in the third quarter.

These are not "bumps in the road." They are "driving off a cliff." By some estimates, inflation-adjusted earnings are down 90% in the last 20 months. We are now in just the second year of this disaster. We are witnessing an almost perfect copy of the first Great Depression. And there are more nasty little secrets in the economy, waiting like ticking time bombs to explode. We will see more businesses in trouble, more banks failing, more foreclosures and more commercial real estate losses.

At the end of June alone, there were over 5,300 commercial properties in the United States in default. That’s more than double the number from the end of 2008 — and there are still six months to count. Still think American companies are recovering? What will a 300% rise in commercial defaults do for jobs? Profits? Banks? So don’t let the recovery pundits fool you, even though they’re out in force.

Setting the Stage: Zooming in Our Focus

No doubt you’ve heard the optimists: "The Recession is over." "The Recovery has begun." "Better get in on the ground floor now if you hope to recover all that retirement money you lost last year." Just look at the evidence, they say:

Markets up 50%. In the greatest bull run since the Great Depression, stock indices are forging higher. The numbers are swelling. Ride the wave!

Housing numbers are turning north. Over the past six months, there have been some the fall in some housing numbers are slowing, and some have turned up. Building permits. Existing home sales. New home sales. New housing starts. Pending home sales. Hmmm… nice!

Manufacturing looks like it’s exploding. Yesterday the Institute for Supply Management manufacturing index posted a stronger-than-expected rise at 52.9. Well above expectations, and well into the 50+ territory that signals expansion. Looking better and stronger than it has in 2 years. It would be a mistake to bet against it!

But you probably know what I’m going to say right now: Don’t believe a word of it!

The September Syndrome

No market goes up forever. Isn’t that one of the first lessons we learn when chasing a bull market? This one is no different. Could it go higher? Sure. But just how far can you stretch a rubber band? Eventually, it is going to snap back. And, as it happens, we’re heading right into "snapback" season. Historically, the month of September is the worst month for stocks. Hands down. Indices fall more in this month on average than in any other month of the year.

In fact, the S&P has declined in 11 of the past 20 Septembers. You may be inclined to say, "That’s not so impressive." But an average decline of 10 points is something worth noting. Additionally, 40% of those falls consisted of declines that were 75-125 points. That’s huge. No other month has such an anomaly. And it seems to me that this September may be ripe for the picking. In fact, the first day of September was a real whopper. And Monday (although technically an August day) was not so august for U.S. equities. Thus, as the calendar turns over, we have two days in the down column. Today is not looking so good, either.

But as bad as September is, October has the reputation for being a real bloodbath. It certainly possesses a number of the largest down and crash days. But in order for a crash of monumental proportions to take place, there has to be some lofty level from which to fall. I get physically sick when people tell me how they are moving (what’s left of their money) back into equities. I try to reason with them; I try to warn them. It breaks my heart to see pensioners barely getting by. You remember all the drama from recent years, how we were told that the elderly were forced to choose between food and medicine? Do you remember the seniors who were reportedly sharing their cat’s food so they could buy their prescriptions?

And that was during the go-go boom years. I cringe when I think of what lies ahead for them. Will it start this fall? Has the band stretched far enough? Has Wall Street suckered in all the money that will venture out into the street? That’s all they’re after. Draw everyone out of the woods. Get all those who believe that it’s time to buy and hold into the game again. A 50% rally? Child’s play! This time the Dow is headed for 18,000!

Better tread carefully. This is without question the area of thinnest ice. One misstep by the government, a foolish line slip or a negative surprise, and the entire "recovery" falls like a house of cards. Keep your money, and your exits, close…and don’t be afraid to take profit.

As the OECD tells us that the global recession is likely ending, maybe some investors should be careful what they wish for.Once we're back to growth, the Fed could be forced to hike rates rather quickly as per Philly Fed President Richard Plosser. This could feasibly happen as early as 2010.

"Our exit strategy is really quite simple: we have to begin to pull back from our extraordinary programs, we have to begin to shrink our balance sheet, otherwise we will feel inflation in the months and years ahead,"..."And that may mean raising interest rates very rapidly, at least as aggressively as we cut interest rates, if the time is right."...Bartiromo: "Is it fair to say that rates will go higher in 2010?" Plosser: "We'll have to wait and see how the recovery evolves."

California drivers can't line up to renew their licenses Friday. Wisconsin natives can't order copies of their birth certificates. Georgia consumers will have to postpone registering complaints with state watchdogs. And stranded motorists in Maryland may have to wait a little longer for highway-department help. Across the country, cash-strapped state governments are shutting down business for a day at a time to save money. State offices are shuttered Friday in California, Maine, Maryland and Michigan. Rhode Island had planned to join them until a judge on Thursday blocked its closure plan.

Some state agencies are closed in Georgia and Wisconsin, and most Colorado state offices will be shuttered on Tuesday. Other states, such as Arizona, have been trying to keep their operations open while furloughing thousands of workers. So far the effect of furloughs appears to have been muted, with most people able to take care of state business in advance of closures or by filing forms online. But at the Detroit Center for Family Advocacy, which helps low-income families avoid sending children to foster care, furloughs have already slowed assistance efforts, said managing attorney Tracy Green. The center's work often involves crisis intervention, but some cases have sat unresolved for days because workers in the Department of Human Services were on furlough. "It has been real problematic," Ms. Green said.

A Department of Motor Vehicles office in San Francisco, meanwhile, was packed Thursday with more than 150 people. Last summer, without furloughs, wait times rarely exceeded an hour, but with three furlough days a month, people are waiting more than two hours each day, said Maria De Guia, a motor-vehicle field representative. To make matters worse, inability to keep the office staffed meant roughly a third of the office's 26 services windows are closed at any given time.

Outside, Jerry Oliver was finally putting a registration sticker on his 1977 green Chevy Impala after waiting about three hours. "Today was a nightmare," he said. "I understand they're trying to save some money, but it's inconvenient for everybody." Jordan Wells said he visited the DMV office two weeks in a row to renew his driver's license, only to find it closed both times because of furloughs. He understands why the furloughs are necessary, he said, "so I tolerate it."

The furloughs, which basically act as salary cuts for state workers, are the latest response to plunges in tax revenue because of the recession. State legislatures have struggled to cover shortfalls that have ballooned to $168 billion, or 24% of their general-fund budgets, for the current fiscal year, which for most began July 1, according to a report released Thursday by the left-leaning Center on Budget Policy Priorities.

Consumers have reined in spending, eroding sales-tax receipts, while job losses have cut income-tax collections. States have already responded by raising fees and tapping rainy-day funds, and are now forced to deal with wage costs, which make up about 13% of their budgets, according to the Rockefeller Institute of Government in Albany, N.Y. For political and practical reasons, states have been reluctant to lay off workers, policy analysts said. Instead, furloughs have become the hot trend in budget management, in part because the savings are "easy math" to state officials, said Scott Pattison, executive director of the National Association of State Budget Officers.

But furloughs do little to address fiscal problems such as ballooning pension costs, and some policy watchdogs fret they are a short-term solution to what is likely to be a long-term problem. "Many states expanded health-care funding over the last decade and are now having real trouble paying for it," said Robert B. Ward, deputy director of the Rockefeller Institute. Educational programs and economic development also ballooned, he said.

Furloughs may provide a political benefit to politicians who must placate powerful unions while dealing with taxpayers who fume that government employees haven't shared the pain of a recession that has cost more than six million private-sector jobs. Government jobs have traditionally been an island of stability during recessions, and states kept adding workers well after the recession began at the end of 2007. But since August 2008, states have shed about 33,000 jobs, according to data from the federal Bureau of Labor Statistics. Experts say more layoffs are inevitable. Furloughs have already affected hundreds of thousands of workers -- more than 200,000 in California alone.

More than 20 states have considered forcing employees to take unpaid furlough days, according to anecdotal reports as well as data compiled by the National Conference of State Legislatures, which says it is too early to calculate exactly how much these moves save the states. About five million Americans work for state governments, according to federal statistics, from colleges and prisons to public hospitals, parks and all kinds of administrative offices. In some states, labor unions have turned to the courts to try to stop shutdowns. The situation has been particularly contentious in Rhode Island, where a union lawsuit alleges the governor violated collective-bargaining agreements by ordering 13,000 workers to take 12 unpaid furlough days over the next nine months to help close a $68 million budget gap.

Gov. Donald Carcieri has countered that a shutdown is within his authority. On Thursday, a state supreme court judge blocked any closure until the whole court can consider the case, expected to happen Sept. 11. On the other side of the country, SEIU Local 1000, which represents 95,000 workers in California, has filed five suits challenging Gov. Arnold Schwarzenegger's decision to close down the government three Fridays a month, which the union says amounts to a nearly 15% pay cut.

But in many states, unions have accepted the furloughs as preferable to layoffs. "There really wasn't a point to sue, because if you looked at the budget there was no money," said Sheri Van Horzen, president of the Arizona State Employees Union. Arizona has furloughed 15,101 workers and laid off 1,537, according to the Department of Administration. One sign of the trend's novelty: Few states had any procedures for running them. Wisconsin "had some back in the '80s, but there was very little information about that," said Jennifer Donnelly, director of the Office of State Employee Relations in Madison. The state hopes to help save $225 million over the next two years by shutting down for eight set days and requiring employees to schedule eight more furlough days.

States choosing shutdowns rather than rolling furloughs say that they think residents will be better able to deal with the occasional closed office, announced in advance, than with long lines and overloaded clerks every day. They also generally exempt certain critical workers; in Maine, state troopers, corrections workers and staff at two state hospitals aren't part of the furlough program. Some budget-watchers hope furloughs and financial constraints result in more efficiencies. In California, for example, where furloughs began last January, the DMV says that during the first six months of 2009 more than 473,000 people chose to renew their drivers' licenses online, an increase of 32%.

In another sign that California is inching back to the financial edge, earlier this week 143,000 unemployed Californians exhausted their unemployment benefits. Now, you might think that this is simply a function of a normal recession. It is not. In fact, many of these people have exhausted their 26 weeks of benefits plus three additional extensions. That is, Californians are eligible for up to 79 weeks of benefits and that is still not enough! That is why even though the layoffs are tempering off, the major question is who is hiring and hiring at a high enough pace to make up for the new workers and displaced workers currently in the economy?

California this year has had to plug some $60 billion in budget deficits. The state moves slowly and many of the cuts are still coming through the pipeline. With an unemployment rate of 12 percent this will grow in the next few months. But take a look at the duration of unemployment in the state:

Last year, those designated as long-term unemployed made up 18% of the unemployed in the state. Now, that group is the largest category making up 28% of all those without work. This is crucial because the state is currently paying out $80 million a day from the unemployment insurance fund that has been in the negative since the start of the year:

Another bill has been introduced to extend benefits for a fourth extension bringing the amount of unemployment insurance available for up to 92 weeks! This is no minor recession but a major economic shift in our economy. Without the extension being passed there will be 264,000 Californians with no unemployment insurance by the end of the year. Congress returns in a few days but they have their hands full with the healthcare debate which seems to be dominating the entire dialogue of the country. The reality is, we have multiple issues that need to be addressed at once while the American public has lost confidence with Wall Street and their politicians.

So far this year California has dished out some $11 billion in unemployment insurance. This is the biggest amount on record dwarfing the previous record set last year at $8.1 billion. It is hard to say what industry is going to drag the state out of recession. California has been heavily dependent on housing and finance for the prosperity of this decade. To bet the economy of the largest state on an epic bubble has proven to be disastrous. It is highly unlikely that we will have another bubble to save us like the technology bubble of the 1990s or the real estate bubble of this decade.

Weekly benefits range from $65 on the lower end all the way up to $475. The insurance people receive depends on their previous income. The average weekly amount is $319.

In a previous post, I discussed how 34 million Americans are receiving food stamps. Of that, California has 2.2 million. What the state is realizing is that you cannot keep spending at levels at peak bubble points and expect revenues to come in when the economy has radically shifted. Money is going out of the state even in light of the all the budget cuts. The state heavily depends on personal income tax and sales tax. Both of these volatile sources go down in recession. Not only that, but you also have many not working and drawing on funds. That is why California always finds itself in feast or famine. Until California learns to have a more sensible budget with contingencies for recessions, this is going to be the status quo for years to come.

Rhode Island residents looking to renew their drivers licenses, get help claiming unemployment benefits or even go golfing could face closed doors Friday after a judge cleared the way for Gov. Don Carcieri to shut down most of the state government. Unions representing nearly 13,000 state workers are seeking to stop the shutdown day, the first of a dozen planned by Mr. Carcieri. Superior Court Judge Michael Silverstein on Thursday refused their request to do so, instead ordering both sides into arbitration, a process that could take two months or more. A state Supreme Court justice planned to hear an appeal from the unions Thursday afternoon.

Mr. Carcieri, who didn't immediately comment on Judge Silverstein's ruling, ordered the shutdowns to help close a $68 million shortfall in a state budget hammered by surging unemployment and dwindling state tax revenue. The shutdowns will require all but essential workers to stay home without pay, or about 80% of the state's work force. "We want to stop the shutdowns and go to arbitration," said Brendan Fogarty, president of Local 400, whose union represents employees from the departments of transportation, environmental management and administration. "We don't want our members to not get paid while we wait for the decision."

Mr. Carcieri has scheduled one or two shutdown days every month until the start of the state's next fiscal year in July. The decision puts Rhode Island among at least 20 states considering furloughs or shut downs to save money, according to a survey by the National Conference of State Legislatures.

Among those likely to be inconvenienced are people already pinched by one of the worst recessions in Rhode Island since the Great Depression. The call center at the state Department of Labor and Training will not take calls from newly unemployed people in a state with a 12.7% unemployment. Workers at the department have struggled to quickly process unemployment claims from jobless people seeking cash help. The state has been paying workers overtime to process a backlog of unemployment claims filed online, department spokesman Laura Hart said. Ms. Hart said the backlog could rise in the short term because of the shutdown days. "We really are going to have to see the long-term impact, we don't know yet."

In a memo to Mr. Carcieri, the Department of Human Services warned computers systems used to manage welfare and health-care benefits cannot automatically account for the shutdown days, meaning those services could be improperly continued or prematurely cut off. Child-support payments will be delayed by a day. The shutdown mean roughly 450 to 500 people will not be served by the food stamp program, according to the memo. Rehabilitation workers said the state could lose federal stimulus funding if their backlog grows too great.

Carcieri spokeswoman Amy Kempe said all state departments have worked for weeks to prepare for the upcoming shutdown. She said state workers will fix computer programs, correct mistakes and reschedule appointments to make sure people aren't penalized because of bureaucratic mistakes resulting from the shutdown. "It's not as if we're going to shut the doors, walk away and say, "Sorry, we can't help you,'" Ms. Kempe said. Beaches across the Ocean State will remain open and staffed by lifeguards, although the golf course at Goddard Memorial State Park in Warwick will be closed. Division of Motor Vehicles offices will be closed.

Child-abuse investigators, medical examiners and state police will still report to work or be on-call, although their civilian support staff will stay home. Family and friends cannot visit inmates at the state prison in Cranston during the shutdown days. The statewide shutdown would be the first in Rhode Island since 1991. Then-Gov. Bruce Sundlun ordered state government to close for 10 days during a financial crisis brought on by the collapse of local credit unions. State workers took two days without pay before Mr. Sundlun struck a deal with state employee labor unions.

Big ol’ honkin’ crocodile tears: Those are what our state legislators have been shedding with regard to passing their smoke-and-mirrors budget. "We’ve had to make the hard decisions," they bemoan with grimly set mouths.

I don’t buy that for a second; it’s simply not true. As education, health and human services are slashed this year because of poor stewardship in Sacramento, the Legislature gives a pass on levying a California oil extraction tax, the only oil-producing state in the nation not to have one.

In fact, the Fair Political Practices Commission said in early August that state officials had fattened their lobby-stuffed coffers by more than $60 million through fundraisers in the first half of 2009 — and it’s not even an election year. No, our solons in Sacramento are taking the money and making the tough decisions to balance the budget on the backs of their least powerful constituents, those without lobbies: the young, old and infirm.

I asked Lee Collins, director of the county’s Department of Social Services, to give that decision a human face; what do the cuts to health and human services mean locally? A staff member in the department’s In-Home Support Services (IHSS) — those good folks who make a pittance to help keep people in their homes, out of institutions and shelters and off the streets — had this story to tell:

"I have a client who is 63 years old and is on dialysis three days per week. He suffers from diabetes, renal disease, high blood pressure, migraines and anxiety."His IHSS provider helps with "domestic chores, some meal preparation, laundry and grocery shopping. After dialysis he is very weak and tired and finds it difficult to do much of anything."

This gentleman will be cut from the program in October. "Without IHSS, he will be forced to do these tasks even though he physically is unable. For example, his provider takes his clothing to the laundromat as he has no washer or dryer. This would be very hard for him to do on his own." To make matters even more desperate, he doesn’t have any local family members who are able to help him. This man will be cut off from simple, rudimentary in-home care. How will he survive?

Another in-home provider noted: "I have a client who had her Supplemental Security Income/State Supplementary Payment cut. As a result, she’s submitted a proposal to her landlord to have her rent reduced. If the landlord doesn’t accept the proposal, the client will have to move to a shelter — one that can accommodate her need for a respirator because she suffers from impaired breathing, which, in turn, limits her ability to address personal and domestic care."

In yet another case, "Mr. C is a 39-year-old man who lives with his cats and dog in a converted garage/duplex built by his parents in a rural area of Nipomo. He is a paraplegic as a result of an accident. He is wheelchair dependent with limited use of his upper extremities.

"In 2003 he fractured his right femur. He has no feelings in either leg, needs his provider to rub both feet to promote circulation and assist him with his standing device. As his home is not handicapped accessible, Mr. C needs help with meal prep and laundry. Although he can do light shopping, he is unable to do his own weekly shopping. Mr. C is also being treated for osteoporosis and gives himself daily injections. He is active and has a wonderful attitude."

As Collins noted: "Well, we can hope he’ll still have a wonderful attitude when all of his services are eliminated." Multiply these stories hundreds of times in our county, as well as thousands of times throughout the state, and the bleating of our legislators pleading that they’ve "had to make the tough choices" rings hollow indeed.

Baltimore County will lose 90 percent of the state aid that pays for highway construction and road maintenance as part of an effort to close an estimated $740 million deficit in this year's Maryland budget. The rest of the county cuts will come from aid to police, the health department and the Community College of Baltimore County. The state Board of Public Works unanimously approved Gov. Martin O'Malley's proposed $450 million in cuts to the state budget Aug. 26. Included are the elimination of 364 state jobs and the imposition of up to 10 furlough days for state employees.

"These are not easy decisions. Just as families, businesses and individuals across Maryland struggle to find ways to tighten their belts, our state government must do more with less," O'Malley said in a news release last week. "Our citizens expect and deserve a government that works, and in spite of the most severe recession in a generation we've been working to reform our state government to make (it) more efficient and effective." The news release included a broad outline of reductions, including cuts in state aid to counties of about $211 million.

Aid to Baltimore County will be cut by slightly more than $23 million -- second only to Baltimore City, which could see aid reduced by $35 million, according to a list of proposed cuts. The board, which can cut the state budget by up to 25 percent without approval from the General Assembly, is made up of O'Malley, state Comptroller Peter Franchot and state Treasurer Nancy Kopp. Don Mohler, a spokesman for County Executive Jim Smith, said earlier last week that county employees will not be laid off or furloughed this year or in the next budget year to offset reductions in state aid.

Baltimore County highway user funds were cut by $15 million, leaving a total of about $1.7 million. State grants to the police department will be reduced by $3.4 million under the governor's proposal. The reductions are likely to come from a reduction of grants from the governor's Office of Crime Control and Prevention. The reductions will not affect the number of police officers on the street, but could reduce or eliminate some public safety initiatives. Specific programs that will be affected are not yet known.

The grants typically pay for programs such as Juvenile Offenders In Need of Supervision. The program diverts non-violent, first-time juvenile offenders from the juvenile court system and detention facilities by placing them in an intensive, year-long supervision program. Other initiatives, such as a program that helps monitor offenders on parole and probation in six county neighborhoods, could also be affected. Aid to the county health department will be reduced by slightly more than $2.3 million under the governor's proposal -- part of nearly $21 million in proposed similar cuts to health departments around the state.

Similarly, aid to CCBC will be cut by about $1.8 million. State aid to community colleges around the state was reduced by more than $10.5 million. The number of full-time students attending the college is up 22 percent over last year, CCBC President Sandra Kurtinitis said. O'Malley proposed the elimination of 364 state jobs, including more than 200 that are currently filled. The state estimates the move will save about $17 million. State employees will also be required to take up to 10 furlough days. The number of days each employee will lose will depend on how much they earn.

Employees earning $40,000 to $49,999 will be required to take three furlough days. Those earning $50,000 to $99,999 will lose four days pay. Those making over $100,000 will lose five days pay under O'Malley's proposal. A spokesman for the governor said he and Lt. Gov. Anthony Brown would take part in the furloughs. This is the second time in a year that state employees have lost pay under a furlough plan. A similar plan was enacted last fall.

Other county officials have expressed frustration in the days prior to O'Malley announcing the reductions in state aid. Anne Arundel County Executive John Leopold, who spent five terms in the House of Delegates, said the state "over the last decade has balanced its budget in no small measure by raiding funds that will go to the counties." Money that is supposed to be dedicated to highway repair and construction and the purchase of land for parks and open space are typically the first to get siphoned off, Leopold said. "To say the counties aren't paying their fair share isn't accurate," Leopold said.

The Federal Housing Administration, hit by increasing mortgage-related losses, is in danger of seeing its reserves fall below the level demanded by Congress, according to government officials, in a development that could raise concerns about whether the agency needs a taxpayer bailout. The rising losses at the FHA, part of the U.S. Department of Housing and Urban Development, come as the agency has rapidly increased its role in guaranteeing loans in an attempt to stabilize the housing market.

It isn't clear how the rising losses may affect home buyers. Options for the agency could include politically unpalatable choices, such as asking for taxpayer funds to top up its reserves or increasing the premiums borrowers pay for the insurance offered by the agency. The FHA insures private lenders against defaults on certain home mortgages, an inducement to make such loans. Insurance from the New Deal-era agency has enabled lending to buyers who can't make a big down payment or who want to refinance but have little equity. Most private lenders have sharply curtailed credit to those borrowers.

In the past two years, the number of loans insured by the FHA has soared and its market share reached 23% in the second quarter, up from 2.7% in 2006, according to Inside Mortgage Finance. FHA-backed loans outstanding totaled $429 billion in fiscal 2008, a number projected to hit $627 billion this year. Rising defaults have eaten through the FHA's cash cushion. Some 7.8% of FHA loans at the end of the second quarter were 90 days late or more, or in foreclosure, according to the Mortgage Bankers Association, a figure roughly equal to the national average for all loans. That's up from 5.4% a year ago.

Resulting FHA losses are offset by premiums paid by borrowers. Federal law says the FHA must maintain, after expected losses, reserves equal to at least 2% of the loans insured by the agency. The ratio last year was around 3%, down from 6.4% in 2007. If its reserves fall short, the agency is obliged to notify Congress, which could spark a commotion over the extent to which the government is funding losses in the housing market. Some analysts and homebuilders have said losses might lead the FHA to pull back lending, which has helped boost flagging housing demand.

A senior official at HUD, which oversees the FHA, said there is "no risk" that the FHA would require money from Congress if the ratio dips below 2%. Asked about the agency's capital ratio, the official said a report detailing that number won't be completed until the FHA's fiscal year ends Sept. 30. HUD Secretary Shaun Donovan said in June, "there's a better than even chance that we will stay above the two percent reserve threshold. That suggests, not just for the 2010 business, but overall for the portfolio, that we'll more than likely to stay out of a broader need for any taxpayer funding."

Some economists say the FHA's expanded lending has been crucial to preventing a deeper bust in the property market. Thomas Lawler, an independent housing economist, said "the alternative could have been a complete meltdown of housing finance" that would have ultimately led to much larger losses. Critics have said the FHA, which has never had a chief risk officer, isn't able to manage such a large portfolio and has weak underwriting standards.

Policymakers have used the FHA to stabilize the housing market by pushing it to offer credit with far easier terms than that offered by most private lenders. For example, it will back loans with down payments as low as 3.5%. Much of the FHA's risk comes from its growing exposure to the broader economic downturn. The FHA is particularly sensitive to home price declines because of the small down payments it will accept, which can quickly become wiped out by fall in home values.

"The size of their footprint in the mortgage market is so large that it exposes the FHA to economic risk, even if the products are performing well," says Howard Glaser, a mortgage consultant and former HUD official. A review conducted earlier this year by Ann Schnare, a housing consultant, found that the FHA's reserve fund could have a shortfall of $3 billion during the fiscal year ending Sept. 30, and $4 billion for the coming year.

The FHA's total assets have increased to around $31 billion, up from $27 billion one year ago. The pending review, however, accounts for projected losses over 30 years. That put the estimated economic value of the fund at $12.9 billion last year, or around 3% of the all FHA-backed loans. Before the boom, the FHA wasn't a big player in the housing business because it didn't follow private lenders in loosening its standards. Borrowers had to fully document incomes and insured loans were capped at $362,000. Congress increased those limits last year to as high as $729,750 in the most expensive markets. In August, the FHA and the U.S. Department of Veterans Affairs backed 40% of loans for all home sales.

Officials said as recently as May that they didn't expect to fall below the 2% limit, but home price declines have exceeded those used to model their expected losses. Given the pace of those declines, "there is no way they will make the 2%" if the current study follows last year's methodology, says Mr. Lawler. The FHA says it has seen loan quality improve in recent months, including an increase in average credit scores and a decline in loans that were one month delinquent. The agency expects to make $1.4 billion on loans it will insure for the fiscal year that begins in October.

Last year, the agency ended a program that allowed sellers to fund down payments. While that program accounts for around 11% of the FHA's loan book, it has generated 22% all loans that are seriously delinquent or in foreclosure. In 2005, the FHA loosened its maximum loan-to-value limit on cash-out refinancing to 95%, from 85%. The agency moved that limit back to 85% earlier this year. While most private lenders have raised lending standards and now require minimum 20% down payments, the share of borrowers who are able to make down payments of less than 10% hasn't changed in the last two years, largely because of the FHA, says Edward Pinto, a mortgage-industry consultant and former chief credit officer at Fannie Mae.

Hong Kong is pulling all its physical gold holdings from depositories in London, transferring them to a high-security depository newly built at the city's airport, in a move that won praise from local traders Thursday. The facility, industry professionals said, would support Hong Kong's emergence as a Swiss-style trading hub for bullion and would lessen London's status as a key settlement-and-storage center.

"Having a central government-sponsored vault would create a situation where you could conceivably look at Hong Kong as being a hub, where metal could be traded for the region," said Sunil Kashyap, managing director at Scotia Capital in Hong Kong, adding that the facility was the first with official government backing in the region. The Hong Kong Monetary Authority, which functions as the territory's unofficial central bank, will transfer its gold reserves stored in other vaults to the depository later this year, the Hong Kong government said in an earlier statement.

The monetary authority reported $63 million in physical gold reserves as of July 31, according to its International Reserves and Foreign Currency Liquidity statement. The authority wouldn't disclose where the reserves are held, but local media reports cited gold traders as saying that London's the most likely location. Traders said the new depository facility could also foster new financial products, such as exchange-traded funds based on precious metals. The 3,660-square-foot depository, located at the city's main Chek Lap Kok Airport, will serve as a "storage facility for local and overseas government institutions," according to the government statement.

Martin Hennecke, a financial advisor with the Hong Kong-based Tyche Group Ltd., said that could be appealing to regional central banks unnerved after watching the global financial system teeter on verge of implosion last year. "Central banks are increasingly aware of the importance of having gold reserves at time of financial crisis and having it easily available at their own disposal," he said. Meanwhile, local newspaper reports said the Hong Kong Mercantile Exchange had signed an agreement to use the depository for its physical settlement and storage needs.

Marketing efforts will be launched to convince Asian central banks to transfer their gold reserves to the Hong Kong facility, according to reports citing Raymond Lai, finance director with the Hong Kong Airport Authority. Efforts will also be made to reach out to commodity exchanges, banks, precious-metals refiners and ETF providers, the reports said. Management firm Value Partners planned to launch an ETF gold fund that will use Hong Kong instead of London as a repository for the gold backing the fund, local reports said Thursday.

We are indebted again to Paul Mylchreest's Thunder Road Report for news that will bring big smiles to gold and silver investors everywhere. Apparently China is pushing the idea of buying gold and silver for investment purposes to the general population in the way that Western television sells soap powder. If 1.3 billion Chinese citizens start buying gold and silver, even in tiny quantities, imagine what that will do to the market!

The report notes that China's Central Television, the main state-owned television company, has run a news programme letting the public know how easy it is to buy precious metals as an investment. On silver investment the announcer is quoted as saying " China has introduced its first ever investment opportunity for silver bullion. The bars are available in 500g, 1kg, 2kg and 5kg with a purity of 99.9%. Figures show that gold was fifty times more expensive than silver in 2007, but now that figure has reached over seventy times. Analysts say that silver has been undervalued in recent years. They add that the metal is the right investment for individual investors and could be a good way to cash in."

What appears to have happened in China is a total relaxation of strictures on holding precious metals by the individual with the government pushing gold and silver as an investment option, seemingly at every opportunity. This is a far cry from the situation only a few years ago where the distribution of gold and silver was strictly controlled. Now, the Thunder Road Report notes that every bank will sell gold and silver bullion bars in four different sizes to individuals and gold related investments are said to be soaring in popularity.

Around a year ago, Leyshon Resources managing director, Paul Atherley, in an investor presentation in London - and no doubt delivered elsewhere in the world too - commented that some employees at the company's gold mining project in northern China would, on pay day, go to the local bank and buy a small gold bar as an investment and wealth protector. To an extent we put this down at the time to mining company hype - but this seems to be exactly the same phenomenon noted by Thunder Road. The Chinese are being converted from being the lowest per capita gold consumers in the world to a nation of small precious metals investors. Now, by next year, Chinese consumption of gold is likely to exceed that of India, which has been for years the world's biggest gold market. And one suspects that the potential for gold purchasing by individuals is only in its earliest stages. As more and more Chinese move into the cities and individual wealth grows, this trend is only likely to accelerate.

Paul ends the piece on Chinese gold and silver potential with the following comment: "Simply put, the Chinese government is trying to trigger a national gold craze...and it's working. The Chinese public now has gold trading platforms on steroids.... ...Also, for the first time in history, Chinese investors can even trade gold abroad (in London) with the swipe of a ‘Lucky Gold' card. I can't even get Bank of America to open a foreign currency account."

This may be an overstatement of the case from a precious metals bull - or it may not! Certainly if China is indeed pushing the public to buy gold then there may well be a hidden agenda here. It's unlikely they are doing it and will suddenly pull the rug out from under millions of investors. A cynic (or a raging gold bull) would suggest that this will precede a move to switch a good proportion of the country's reserves into gold which would have a huge effect on the global gold price and could prove disastrous for the dollar. Maybe it's not in China's interests to drive the dollar down too much until it has managed to divest itself of the huge dollar overhang (see the article on Chinese Sovereign Wealth Funds we published yesterday - Chinese sovereign wealth fund dumping dollars for strategic investments like gold ). The country may well already be, of course, surreptitiously building its gold reserves without reporting the build-up.

If the Chinese are indeed beginning to buy gold and silver as the quoted report suggests then this has to be a strong signal that prices are going to rise, and perhaps rise dramatically, in the relatively near future. We await comment from other China watchers for confirmation of the gold and silver buying spree, but with global gold production at best flat and probably in decline, even a small increase in Chinese buying could have a substantial impact on gold and silver prices.

Students are borrowing dramatically more to pay for college, accelerating a trend that has wide-ranging implications for a generation of young people. New numbers from the U.S. Education Department show that federal student-loan disbursements—the total amount borrowed by students and received by schools—in the 2008-09 academic year grew about 25% over the previous year, to $75.1 billion. The amount of money students borrow has long been on the rise. But last year far surpassed past increases, which ranged from as low as 1.7% in the 1998-99 school year to almost 17% in 1994-95, according to figures used in President Barack Obama's proposed 2010 budget.

The sharp growth is "definitely above expectations," says Robert Shireman, deputy undersecretary of the Education Department. "But we're also in an economic situation that nobody predicted." The eye-opening increase in borrowing is largely due to the dire economic environment, which is causing more people to seek federal loans, he says. The new numbers highlight how debt has become commonplace in paying for higher education. Today, two-thirds of college students borrow to pay for college, and their average debt load is $23,186 by the time they graduate, according to an analysis of the government's National Postsecondary Student Aid Study, conducted by financial-aid expert Mark Kantrowitz. Only a dozen years earlier, according to the study, 58% of students borrowed to pay for college, and the average amount borrowed was $13,172.

The ripple effects for today's heavily indebted young people are becoming palpable. A growing body of research suggests that tough loan payments are affecting major life decisions by recent graduates, forcing them to put off traditional milestones—from buying a first home to even marriage and having children. Also, the rising levels of borrowing may ironically be contributing to the accelerating cost of college, say some college-finance experts. Loans can give colleges an artificial sense of a family's ability to pay tuition. To some extent, that false sense of security gets built into the assumptions schools make when setting prices, say experts.

The idea is that as prices rise, families borrow more and more, spurring prices to rise further, which in turn requires more borrowing. Barmak Nassirian, associate executive director of the American Association of Collegiate Registrars and Admissions Officers, says this phenomenon is playing a role in why tuition grows at about twice the rate of inflation. "Instead of imposing tougher choices" on college costs, he says, it's "easier to raise prices...because this additional loan amount is made available."

These and other impacts are likely to continue to spiral for future generations of tuition payers, college finance experts say. It is unclear whether we have seen the worst of it. Mr. Kantrowitz predicts the rate of increase will slow to 12% for the 2009-10 school year due mainly to what he expects to be a rebounding economy. On the other hand, Mark Zandi, chief economist for Moody's Economy.com, says he thinks unemployment rates will be at least as high as they are now, and housing prices will fall further, making it difficult for families to borrow against home equity. "Growth in student lending can remain very strong, at least through the next school year," Mr. Zandi predicts.

The total borrowing limit for dependent undergraduates who take out federal Stafford loans—the most popular federal aid program—grew to $31,000 this past school year from $23,000. Raised limits in federal loans may have siphoned some borrowing away from riskier—and costlier—private loans, which are now harder to get due to the retrenchment of that business. The move away from these risky loans may be one bright spot in an otherwise frenzied student credit environment, Mr. Kantrowitz says.

Still, students cringe when they think of what they will owe by the time they graduate. Kordi Solo, a senior majoring in journalism at Central Michigan University, expects to owe about $60,000 in student loans by the time she graduates in the spring. She had hoped to owe much less, but her father, a construction worker, has been out of work since last fall. She worries about the ramifications that debt will have on her future—whether it is being able to afford health insurance or qualifying for future loans.

Zack Leshetz, a 30-year-old lawyer in Fort Lauderdale, Fla., has $175,000 in student loans from his seven years in college and law school. Lately he has had his eye on the real-estate market. "Everyone says that it's a great time to buy a house," he says. But that is not an option right now, he says, thanks to $800 a month in payments—and another chunk of student loans in forbearance, which means payments are halted while interest accrues. "I find myself living paycheck to paycheck," he says. He has also been engaged since March, but has held off on marriage. "There's no way I can pay for a dream wedding, or even just a regular wedding," Mr. Leshetz says. "I feel like I'm putting my entire life on hold."

"There are no guarantees about how easily you'll be able to pay off your student loans," says Lauren Asher, president of the Institute for College Access and Success. These students' experiences are mirrored in research by Mathew Greenwald & Associates Inc. for investment-management firm AllianceBernstein LP. In a 2006 survey of 1,508 graduates under age 35, 39% of college graduates say it will take them more than 10 years to pay off their household's education-related debt. The survey says that this has caused a delay in certain key "rites of passage" associated with adulthood. Forty-four percent of respondents said they delayed buying a house because of their student loans, while 28% delayed having children.

"Loans have gone from being the exception to being the norm for most students," says Mr. Nassirian. He laments that, rather than fixing the problem of sticker price, policy makers typically tweak student-aid programs to make it easier for students and families to continue to borrow more. Attacking the problem of cost is thorny because it is politically difficult to get all the interested parties -- which include federal and state governments, foundations and private institutions—to agree. "There are so many stakeholders, different explanations at different schools as to what's happening with cost, that it becomes politically dicey," says Christine Lindstrom, higher-education program director for U.S. Public Interest Research Group, which advocates for consumers. Also, colleges can be big employers in congressional districts, making it challenging for politicians who represent them to also take them on. "You're not going to win friends if you're alienating them," she says.

Some Republicans made attempts at controlling tuition increases when they held the majority in Congress. Rep. Howard P. "Buck" McKeon of California championed legislation in 2003 that would have penalized colleges for raising tuition too much by taking away federal subsidies. Though the bill died, he plans to continue pursuing the issue in the upcoming Congress, a spokeswoman says. Some recent graduates say they wish they had known more about the consequences of debt before taking it on. Lillian Russell graduated from law school at the University of Pittsburgh last year with $181,000 in debt from her seven years in school. She has spent much of the past year looking for work. In recent weeks, she found a job clerking at a small law office. While she settles into her job, she has deferred payments on most of her federal loans, though interest continues to accrue.

"I wish I had considered the long-term impacts of what I was getting into," Ms. Russell says. When she entered school, "the idea was I'd take out the loans, get a job, and pay it back," she says.It seemed straightforward. But as the economy has soured, "I feel like it's shifted a lot of my life goals," says Ms. Russell, from buying a house to starting a family. "I'm really concerned about handling this obligation while taking on new ones."

Finding work in this recession takes determination, perseverance and, most of all, sacrifice. With unemployment as high as 9.4% and job prospects scarce, job seekers are willing to accept as little as half of what they were making before, if it means finding a job. In a recent survey, 65% of out-of-work respondents reported willingness to accept wages up to 30% lower than their previous compensation. And, 3% and 4%, respectively, said they would accept up to 40% and 50% of prior wages, according to the 2009 Annual Career Fair Survey released by Next Steps Career Solutions.

"In the old days people would expect to get at least a 10%-15% bump when they were making a transition from this job to the next," said Paul Bernard, an executive coach and career management adviser who runs his own firm. Now, "being asked to take cuts in the 20%+ range is pretty standard." That was true for Rebecca Eason, who used to make a comfortable $33,000-a-year living in Tennessee. After losing her job as an office manager for a steel company, Eason, 29, says she has settled for a temporary position making $9.25 an hour until something better comes along.

Her current position is a 40% paycut from what she was making previously and also comes without benefits like health insurance. Her husband, Chris, also lost his job this summer and found a temporary position for 50% of his previous salary. Although Eason says she is thankful they are both employed, living on less has not been easy. "Every penny covers our mortgage, life insurance, groceries, gas -- just the basic necessities," she said. "My hope is that as companies start to feel more confident about the economy, then I will be able to find something better."

Eason's situation has become all too common since the recession began. "I see it every day," said Jay Meschke, president of EFL Associates, a division of professional services company CBIZ. "People are out there accepting positions as much as 50% below what they were making before." "If it is a choice of putting food on the table, paying for a kid's school expenses, or attempting to get on a healthcare plan -- many people are flat out accepting jobs well beneath their former market values," he said. But those who do accept lower salaries in order to ride out the recession might find that they've permanently damaged their value in the workplace.

Experts are divided on whether job seekers will be able to command what they formerly earned once the economy improves. Some say taking a substantial paycut will have implications on a job seeker's future compensation demands. "Job seekers that take severe pay cuts in order to secure a job today may find it extremely difficult to recoup forfeited wages once the economy recovers," said Patrina Campbell, a spokeswoman for Next Steps Career Solutions. "Your future salary will be based on what you were making at your last employer," Bernard explained. In addition, pay cuts are often coupled with lesser titles or demotions, making it harder for employees to jump back to their original level, he added.

The length of stay at an interim job is also an important factor, noted Todd Uterstaedt, president and CEO of Baker & Daboll, an executive coaching firm in Cincinnati. If an employee stays in a lesser paying position for two or more years, it's hard to make a case that they can return to the compensation level they held previously, he said. "There's a new perception of that person in the marketplace, the longer they stay in that role." On the other hand, candidates can use interim positions to their advantage. If the job involves developing some skill sets and competencies that make them more marketable, then they have a better case of asking for a higher level of compensation the next time around, Uterstaedt said.

In a recovery there will be increased demand for labor and employees will have greater options, argued Meschke. Therefore, "employers will have to pay the going rate" to keep top talent from going elsewhere, and that means offering a highly competitive salary. But that will also likely vary by industry, he added. Some sectors, such as financial and automotive, could see permanent price point reductions when it comes to compensation.

Alistair Darling is scrambling to plug a gaping hole in the $1.1 trillion global rescue package agreed by G20 leaders in London — hailed at the time as Gordon Brown’s biggest success. Some countries, led by Germany, are even calling for the bailout to be scaled back amid fears that it risks burdening economies with too much debt and could encourage inflation. The breakdown of unity reflects the different speeds at which countries are emerging from recession and conflicting views about the outlook for the global economy.

The differences also extend to the kind of capitalism that leaders want to shape out of the global crisis. A serious disagreement will flare this weekend at a meeting in London of G20 finance ministers over whether to impose an international cap on bankers’ bonuses — a measure being pressed by France. Mr Darling believes that the proposal is unworkable and will table an alternative plan to tie bonuses to performance, The Times has been told.

At the end of the G20 summit in April, the Prime Minister claimed to have built a "new consensus" among world leaders and was lauded for his role in securing the rescue deal. But a follow-up summit this month in Pittsburgh will take place against the backdrop of undelivered pledges and wrangles over how to curb bankers’ pay.

Officials admit that almost $200 billion (£123 billion) pledged in credit facilities for the International Monetary Fund has yet to materialise. Most embarrassingly, the shortfall includes $75 billion due from the European Union. The Chancellor has warned Europe to set an example and do more to meet the target of $500 billion. Britain has agreed to lend up to $15 billion to poorer economies and is willing to provide up to $11 billion more as part of an EU package. So far, none of the extra credit has been called in by the IMF, although government insiders believe that it will be needed to prop up struggling economies before long.

Other European nations are resisting increasing their commitments to the IMF, demanding that China and India do more to shoulder the burden. Germany is leading demands that the Pittsburgh summit start discussions on how to scale back the bail-out. Peer Steinbrück, its Finance Minister, has called for the reduction of fiscal measures as soon as possible. Angela Merkel, the German Chancellor, has echoed the call for an exit strategy. An insider at the Bundesbank, said: "I never walk into a room without knowing how to get out of it."

British officials have barely concealed their irritation at what they regard as "premature" talk of winding up the global bailout. A senior official conceded that the global economy was picking up but added that it was "far too early to declare victory". In a speech today, Mr Darling is likely to indicate that economic support already agreed, through lower taxes, higher government spending and lower interest rates, should remain until the recovery is "assured and sustained".

Philip Shaw, chief economist at the investment bank Investec, said: "The authorities are aware that if they start exiting too quickly they run the risk of killing off any recovery. In the 1930s they tightened policy too early and it set everything back. "The risk of leaving it too late is that you create an asset bubble, leaving interest rates too low for too long. That is precisely the sort of behaviour which sparked off the asset bubble that led up to the current crisis. "The various governments are starting to talk about the need to draw up an exit strategy. It makes sense that since the bailout and stimulus packages were co-ordinated, the winding down of programmes should be co-ordinated too."

Last night Mr Darling said that the biggest risk to global economic recovery was complacency and that it was too soon to withdraw stimulus measures. "My view is that the biggest single risk to recovery is that people think the job is done," he told The Independent. He said that the situation was at a critical stage and added: "Banks must remember they were rescued not for themselves but to get credit going. They forget that at their peril."

Europe's recovery from recession will be bumpy, according to Jean-Claude Trichet, president of the European Central Bank, who made the prediction as the bank kept rates on hold at 1pc. Mr Trichet said there were "increasing signs of stabilisation in economic activity" in Europe and elsewhere. "This is consistent with the expectation that the significant contraction in economic activity has come to an end and is now followed by a period of stabilisation and very gradual recovery," he added. ECB staff raised their estimates for GDP in Europe for this year and next, and inflation estimates also edged higher.

Good economic data coming out of the eurozone in recent weeks has surprised economists. Germany and France, the region's biggest economies, unexpectedly bounced out of recession in the second quarter. The overall eurozone economy shrank only 0.1pc compared with the previous three months, following a 2.5pc drop in January-March. But Mr Trichet said Europe was not yet out of the woods. "It is more of a bumpy road ahead. Uncertainty is high. Prudence and caution are still of the essence. Overall, the recovery is expected to be rather uneven." The ECB expects the eurozone economy to shrink by between 4.4pc and 3.8pc this year, a slightly smaller contraction than the 5.1pc to 4.1pc range given in June.

Next year the economy may emerge from recession, with growth projections ranging from minus 0.5pc to plus 0.9pc. Mr Trichet said he was in no rush to withdraw emergency stimulus, adding the ECB would pump more one-year funds into the financial system at just 1pc interest later this month. Asked how long the ECB would retain its ultra-loose policy, he said: "Today is no time to exit." Economists expect ECB rates to remain at 1pc until the third quarter of next year and investors have eased back on their hedges against an early tightening.

The leaders of Europe’s three largest nations, Britain, France and Germany, on Thursday signalled that they are moving closer to a general agreement on the controversial issue of bankers’ bonuses ahead of the G20 finance ministers’ meeting in London this weekend. In a letter released on Thursday, the UK’s Gordon Brown, Germany’s Angela Merkel and France’s Nicolas Sarkozy threw their weight behind broad principles that linked the size of bonuses to fixed pay and to bank performance over long periods of time.

They also came out in favour of deferring awards and claw-backs in case of negative outcomes. In what appeared to be a recognition of outstanding disagreements among them, they agreed to "explore ways to limit total variable remuneration in a bank either to a certain proportion of total compensation or the bank’s revenues and/or profits." A French proposal to cap bonuses at a certain percentage of profits has been highly controversial and opposed by the UK. The letter is silent on the subject of targeted taxes for outsized bonuses, the other significant contentious issue.

The letter also suggests that financial institutions that do not comply with agreed G20 guidance on risky business activities should not be given mandates to operate in G20 member states. The public, the letter said, is disgusted with the speed with which banks appear to have returned to former practices. "Our citizen are deeply shocked at the revival of reprehensible practices, despite taxpayers’ money having been mobilised to support the financial sector at the height of the crisis," the letter said. It also set out key areas where Europe’s largest members agree should fill the G20 agenda, both among its finance ministers and at the meeting of heads of state later this month in Pittsburgh.

In particular, the EU leaders are seeking increased capital requirements for activities that could pose a risk to financial stability, and rules to address the moral hazard problems posed by "systemically relevant" institutions through tougher supervision. They also seeks a "roadmap for necessary reform of governance and representation at the International Monetary Fund, which must be completed in January 2011, and of the World Bank to be completed in spring 2010."

It is painful admission, but UK house prices are beginning to recover. In fact, the monthly increases look very much like those recorded during the bubble years. If present trends continue, then within about 15 months, the UK housing market will have recaptured all the losses recorded since October 2007.

The bubble might be back, but its return is due to the implicit guarantee that the Bank of England and the Treasury have put in place as a response to the financial crisis. The government has given home owners now have an implicit insurance policy that the taxpayer will make up any losses on property speculation. It was a guarantee that was easily granted, and will prove virtually impossible to remove.

With each passing price increase, confidence in this guarantee will grow, and as it does, more and more speculators will try to take advantage of it. With the Bank of England pursuing their extraordinary policies of near zero rates and cash creation, everything is primed for a renewed round of speculation.

It is tempting to think that within a few years time, that another financial crisis, similar to the recent one will take place, with its dramatic bank failures and dropping asset prices. However, I see another scenario. The UK will drift into an extended period of increased government intervention, stagnant growth, and asset inflation. The state and the financial system are welded together, the interests of finance dominating the policy stance of the government.

In reality, neither the Bank of England nor the Treasury have any clue how to disentange the financial system from the taxpayer. They have no idea how to remove the tangled web of guarantees, liquidity support and capital injections.

Since they don't have an effective exit strategy, the support will continue indefinitely. Just watch what happens next to house prices.

Spain's hopes of becoming a world leader in solar power have collapsed since the Spanish government slammed the brakes on generous subsidies. The sudden change has rippled across the global solar industry, in a warning of the problems that government-supported renewable-energy programs can encounter. In 2008, Spain accounted for half the world's new solar-power installations in terms of wattage, thanks to government subsidies to promote clean energy. But late last year, as the global economic crisis worsened, the government dramatically scaled back those subsidies and capped the amount of subsidized solar power that could be installed.

Factories world-wide that had ramped up production of solar-power components found that demand for solar panels was plummeting, leaving a glut in supply and pushing prices down. Job cuts followed."The solar industry in 2009 has been undermined by [a] collapse in demand due to the decision by Spain," says Henning Wicht, a solar-power analyst at research group iSuppli. Spain is providing important lessons for the U.S., where lawmakers are engaged in a debate about how to support renewable energy. Boosters of clean energy, including President Barack Obama, have pointed to Spain as a success story showing how government policies jump-started renewable energy, created new industries, and helped the environment.

Spain's early bet on wind power paid off: The country is one of the world leaders in generating such power, only recently eclipsed by the U.S. Spanish wind-power companies have become global players. In 2008, wind power accounted for 11% of Spanish electricity production, compared to less than 1% for solar power. Reyad Fezzani, chief executive of BP Solar, a unit of oil giant BP PLC, said that despite the current crisis, the Spanish model succeeded in creating a solar industry from scratch. "Once you pay for the infrastructure, you have a skilled work force and you can expand and contract very easily," he said.

Clean-energy skeptics, however, point to Spain as a cautionary tale of a government policy that created a speculative bubble with disastrous consequences. Some Republicans have cited Spain's solar bubble and bust as an example of how unsustainable government clean-energy pushes are. The U.S. is experimenting with different ways to promote clean energy, including tax incentives and direct federal subsidies to defray installation costs, and mandates for utilities to get a certain amount of their power from renewable energy.

California and New Jersey, which lead the U.S. in solar power, are among states that have used subsidies similar to the ones in Spain to make solar power more attractive. Two House Democrats, Jay Inslee of Washington and Bill Delahunt of Massachusetts, are drafting legislation that would create European-style tariffs for solar power. The industry's fundamental problem is that, without subsidies, it's still not economically viable. Mike Ahearn, chief executive of Tempe, Arizona-based First Solar Corp., says solar power could be competitive "within a couple of years" -- but only if the industry gains scale. That would require generous government subsidies and other forms of support, Mr. Ahearn says: "It's a chicken-and-egg problem."

Spain's solar ambitions started as an outgrowth of its earlier push to become a global player in wind power. By offering generous long-term support for wind power, Spain became a world leader. Companies such as Iberdrola SA and Gamesa Corp. catapulted from their home market to the U.S. Wind energy was a cheaper renewable option than solar, so the Spanish government sought to make solar power more attractive by increasing subsidies, just as other countries, particularly Germany, were scaling back support. As a result, Spain's solar capacity last year increased to 3,342 megawatts from 695 megawatts, the size of a coal plant, a year earlier. Government subsidies for solar power jumped to €1.1 billion ($1.6 billion) in 2008 from €214 million in 2007.

Solar power "was a financial product, not an energy solution," says Ignacio Sánchez Galán, chairman of Iberdrola, the world's biggest renewable-energy company. Iberdrola has largely shunned solar because wind power is cheaper and requires less land. That's especially true of the new wave of large-scale solar power, known as solar thermal power, which uses the sun to heat water into steam which runs turbines. That technology offers the potential for much bigger clean-energy projects than silicon-coated photovoltaic panels, and has attracted interest from utilities in Spain and the U.S., especially. But solar thermal power is far from being cost-competitive with traditional power sources, and it requires large swathes of empty land, such as those found in parts of Spain and the U.S. Southwest.

Faced with the unraveling world economy and a deepening budget deficit, the Spanish government late last year reduced the money it paid for solar electricity and capped the amount of subsidized solar power installed each year at 500 megawatts. Spain's solar-power capacity has actually shrunk this year as a result. The effects have been felt far beyond Spain. China's Yingli Green Energy Holding Co., which makes solar-power components for export, posted a 43% slide in first-quarter earnings, in large part because Spain was no longer buying.

Yiyu Wang, Yingli's chief strategic officer, said the Spanish experience could teach governments around the world to undertake "more practical, more stable plans." Solar makers such as Norway's Renewable Energy Corp., China's LDK Solar Co. and JA Solar Holdings Co. posted big second-quarter losses. German giant Q-Cells posted a first-half net loss of €697 million and plans to cut about 500 workers, about a fifth of its work force. "We are without a doubt in a difficult situation," Q-Cells CEO Anton Milner wrote in a report to shareholders.

Ben Bernanke just had a fine month. For allegedly saving the world from a second Great Depression, President Barack Obama awarded the Federal Reserve chairman a second four-year term. "As an expert on the causes of the Great Depression, I'm sure Ben never imagined that he would be part of a team responsible for preventing another," the president said. "But because of his background, his temperament, his courage and his creativity—that's exactly what he has helped to achieve."

"Mission Accomplished," the banner might have read.

Missing from Obama's speech was any mention of Bernanke's economic ideology. The New York Times and Bloomberg News have called him a strict Keynesian—a liberal fan of fiscal stimulus—and that label has stuck.

In reality, Bernanke is following the monetarist depression-prevention model hatched by Nobel laureate and libertarian patron saint Milton Friedman. Bernanke has repeatedly invoked the late libertarian economist in support of lowering interest rates to zero, bailing out banks, and pumping untold trillions of dollars into the financial system. The implicit goal of these policies is to ignite artificial inflation.

The story begins in 1963, when Friedman and co-author Anna Schwartz published The Monetary History of the United States. Their chapter on the Great Depression was spun off into a standalone book, The Great Contraction: 1929-1933, an epic revisionist history that changed America's understanding of the causes of the Depression. Friedman and Schwartz contended that the Federal Reserve—not capitalism or Wall Street—was to blame for the dismal '30s.

"The fact of the matter is that it was the decision to tighten credit policy in 1928 that produced the Great Contraction," the 93-year-old Schwartz said by phone from her office at the National Bureau of Economic Research in New York City. Interest rate hikes had been undertaken in 1928 to curb what the Fed saw as rampant speculation on Wall Street—a conflagration of leveraging, margin buying, and outright Ponzi scheming fueled by cheap credit that was supplied in the first instance by the Federal Reserve. (Goldman Sachs' pyramid schemes of the era, when they collapsed, would generate losses of $475 billion in today's dollars.)

Friedman and Schwartz, however, denied that speculation had ever posed a problem, or that there had even been a credit bubble in the 1920s. In their narrative, a paranoiac Federal Reserve had needlessly constricted the money supply and thereby crashed an otherwise prosperous economy.

After the Great Crash of 1929, the Federal Reserve drastically cut interest rates; but, on occasion, the Fed was forced to abruptly raise them again in complicated maneuvers to stem outflows of gold into Europe. Friedman and Schwartz blamed these sporadic interest rate hikes for smothering several incipient recoveries, opening a vortex of deflation, and turning a recession into the Great Depression.

Friedman and Schwartz's overarching thesis was that the Depression would have never happened if the Federal Reserve had inflated the American economy. As Schwartz told me, "What the Fed had to do was increase the money supply. By taking that action, it would've revived the economy. That's the lesson of the Great Depression." In The Great Contraction, she and Friedman argued that the Fed had an infinite capacity to inflate. "The monetary authorities," they wrote, "could have prevented the decline in the stock of money—indeed, could have produced almost any desired increase in the money stock."

Which brings us back to the question of Ben Bernanke's economic ideology. When it comes to the Great Depression, Bernanke is a disciple of Friedman and Schwartz. In 2002, at Friedman's 90th birthday party at the University of Chicago, Bernanke was effusive. "Among economic scholars," he began, "Friedman has no peers." He developed the "leading and most persuasive" explanation of the Depression, whose impact on economics and the popular mind "cannot be overstated."

At the conclusion of his encomium, Bernanke made a stunning and ominous apology on behalf of the Federal Reserve. "I would like to say to Milton and Anna...regarding the Great Depression. You're right, we did it. We're very sorry. But thanks to you, we won't do it again."

Schwartz was also present at the birthday party. "I'm sure he was sincere when he said that," she recalled. And Bernanke stayed true to his word. In 2006, he replaced Alan Greenspan as chairman of the Federal Reserve. Greenspan had engineered an era of non-inflationary loose credit that won Friedman's endorsement: "There is no other period of comparable length in which the Federal Reserve System has performed so well," Friedman declared in The Wall Street Journal.

When the economy collapsed two years into Bernanke's watch because of a massive credit bubble, Bernanke slashed interest rates to zero and ordered the money-printing presses to full steam. He also embarked on a course of "qualitative easing," whereby a central bank convolutedly buys its own government's bonds with printed money so as to sink interest rates even further (not to be confused with quantitative easing, in which a central bank tries to stimulate the economy by maintaining interest rates at or near zero).

This approach was nothing new. Friedman had recommended qualitative easing, combined with ultra-loose credit and inflation, as a panacea for Japan's slump in the 1990s, which he described as an "eerie, if less dramatic, replay of the Great Contraction." As he did with the Depression-era Fed, Friedman emphasized that, "There is no limit to the extent to which the Bank of Japan can increase the money supply if it wishes to do so." In 1998, a year after Friedman penned his advice in The Wall Street Journal, Japan introduced monetary stimulus: a cocktail of zero interest rates and qualitative easing. But deflation continued. Today, Japan's exports are down an unthinkable 36 percent from last year and prices are plummeting at an all-time record pace.

Stateside, in light of the Fed's multi-trillion dollar balance sheet, it has been all too easy to mistake Bernanke for a Keynesian supporter of public works projects, socialistic safety nets, and government-led consumption. And while it's true that the Obama administration is pursuing Keynesian fiscal stimulus, the Federal Reserve, as an independent, semi-private institution owned by America's banks and largely walled off from the executive and legislative branches, has developed its own agenda. That agenda is monetarist. Yet the media consistently gets this crucial fact wrong.

The New York Times, for instance, has identified Bernanke as "a student if not necessarily a devotee of the British economist John Maynard Keynes." But Bernanke actually spent most of his academic career elaborating on Friedman's interpretation of the Great Depression. Though his research sometimes strayed into non-monetary subjects, it was always "an embellishment of the Friedman-Schwartz story... and no way contradict[ed] the basic logic of their analysis," as Bernanke assured Friedman at his birthday party.

Bernanke's infamous moniker, "Helicopter Ben," came about when he quoted Friedman on the importance of conjoining fiscal and monetary policies. In a 2002 speech, "Deflation: Making Sure ‘It' Doesn't Happen Here," Bernanke described the ideal fiscal stimulus as a shower of tax cuts "equivalent to Milton Friedman's famous 'helicopter drop' of money." Friedman had originally used that phrase to counter Keynes' idea of the "liquidity trap," where zero-interest rates lead to bank hoarding and leave the Federal Reserve no maneuvering room. Friedman suggested that countries could escape the liquidity trap by handing out money to consumers, and he laid out his argument in a tale about a helicopter unloading cash on a town. To that effect, Bernanke's Federal Reserve has created special "vehicles" to disburse consumer credit.

In February of this year, Bloomberg News added to the confusion by reporting, "Federal Reserve Chairman Ben S. Bernanke is siding with John Maynard Keynes against Milton Friedman by flooding the financial system with money." Of course, Bernanke has said precisely the opposite. He's flooding the financial system with money as Friedman would have him do.

On February 10, Bernanke further revealed his allegiance to Friedman in an overlooked Capitol Hill Q&A session with Rep. Ron Paul (R-Texas). Their exchange is worth dusting off and quoting at length.

"Chairman," Paul began, "you have written a lot about the Depression. There was a famous quote you made once to Milton Friedman, apologizing for the Federal Reserve bringing on the Depression. But you assured him it wouldn't happen again....But the key to this discussion has to be: was it too much credit in the ‘20s that created the conditions that demanded a recession/depression; or was it lack of credit in the Depression that caused the prolongation?...Here we're working frantically to keep prices up. What's wrong with allowing the market to dictate this...and prices to go down quickly so we can all go back to work again?"

In response, Bernanke repeated the lesson of The Great Contraction and asserted that he was acting on it: "Milton Friedman's view was that the cause of the Great Depression was the failure of the Federal Reserve to avoid excessively tight monetary policy in the early ‘30s. That was Friedman and Schwartz's famous book. With that lesson in mind," Bernanke continued, "the Federal Reserve has reacted very aggressively to cut interest rates in this current crisis. Moreover, we've tried to avoid the collapse of the banking system."

For her part, Schwartz is now conflicted about Bernanke's application of her and Friedman's theories. "You don't have to lower the interest rates to the extent that he has in order to increase the money supply," she informed me. "The essential action should be increasing the money supply. That's the lesson of the Great Depression."

She upholds the analogy between today's crisis and what she and Friedman prescribed in The Great Contraction. "There's nothing contradictory in The Great Contraction with reference to what the Fed should be doing currently.... And I don't believe there's any contradiction between what The Great Contraction was reporting and the current condition of the banking system in this country."

Schwartz sounded alarmed, though, at the zealousness with which Bernanke has put "monetary expansion" into practice. She berated the Fed for going too far and predicted that it will have to raise interest rates "in the near future" to arrest inflation. Asked if she sees hyperinflation on the horizon, she exclaimed, "Oh, yes!"

But Schwartz also seems to have undergone a late-life conversion to Keynesian theory. Asked to offer a solution to the crisis, she repeated the ultimate Keynesian maxim: the government should pick up slackening demand in the private sector.

"People are saving, not spending. In order to revive this economy..." she paused, hesitating on the thought, "the government will have to resume spending. By spending, the government will require that the current inventory will be depleted and have to be replenished. And that will bring on additional production and jobs."

Paul, a libertarian like Schwartz and Friedman, worries that the Federal Reserve is bringing the pair's monetarist model into reality. In a phone interview, he noted, "In essence, Bernanke is following Friedman's advice. He's a Friedmanite when it comes to massively inflating. Bernanke was able to justify [his policies] by using Friedman."

Asked if Friedman's enthusiasm for inflation flouts libertarianism, Paul answered: "Absolutely. The monetarists said that you could overcome a natural market correction of a collapsing system by inflation—print money faster! Which contradicts Friedman's whole thesis. He wanted a steady, managed increase in the supply of money of about 3 percent." Here Paul is alluding to Money Mischief, Friedman's 1991 book in which he called on the Federal Reserve to grow the money supply at 3 percent annually, presumably forever. "Yet, at the same time, Friedman said the Depression could've been prevented by massively inflating."

Paul has kind words for Friedman, whom he praises as a staunch defender of economic liberty, but his final summation is damning: "Friedman's very, very libertarian—except on monetary issues."

With Bernanke at the helm, the Federal Reserve has unleashed monetary expansion, the polite term for inflation—and Friedman's catchall remedy for economic depression. And if Bernanke, Obama, and scores of economists are correct, it may be working. But with 300,000 more people having foreclosed on their homes in July, widespread hunger in Detroit, dust bowl conditions in the California valleys, a stock market crash in China, and unemployment projected to crack double digits later this year, the much-vaunted recovery is no certainty. And if it isn't working, we might still be in for a depression, or worse.

On top of that, the total price of the Fed's monetarist program is a mystery beyond human reckoning. Paul, whose bill to audit the Fed has stalled despite co-sponsorship from more than half of the House, declared, "We don't know for sure how much the Fed has spent—I've heard it could be six trillion dollars. But we have no knowledge of what the Fed's doing. All these dealings are very secret." Earlier this year a Bloomberg estimate pegged the number at around $13 trillion—an amount roughly 1,300 times the age of the universe. (We may soon find out the exact number. On August 25, a Manhattan court ordered the Federal Reserve to open its books.)

Friedman and Schwartz, in other words, have helped to spawn the grandest expansion in the Federal Reserve's history, a program of limitless market interventions and tireless money printing whose unstated aim is all-out inflation. For two libertarian champions of free markets and limited government, this legacy has the ring of a world-historic irony.

Deutsche Bank and other financial institutions manage complex funds that buy up Americans' life insurance policies and pay their premiums in return for their payouts. But angry German investors are finding that Americans aren't dying as quickly as expected -- and that only the bankers are making a buck. Gisbert Soballa has a rather dispassionate stance toward death. The 72-year-old retired cardiologist says that, to him, dying was always "something completely normal." Given that, the doctor didn't pause when his adviser at Deutsche Bank suggested a peculiar deal with death.

The "db Kompass Life" fund buys up life insurance policies of Americans and assumes responsibility for paying their future premiums. When a policyholder dies, the entire payout from the policy goes to the fund. And since everybody dies, it would seem to be a fairly crisis-proof investment. Soballa and his wife together invested €16,000 (about $23,000) into the fund. In 2007, they received a small dividend. Since then, the Bavarian couple has received quarterly statements -- all of which notify him that "unfortunately, there will be no dividend payments this quarter." So, it would appear that bankers' betting on the demise of anonymous Americans hasn't born much fruit.

Many thousands of investors have had similar experiences. Since 2005, Deutsche Bank has taken in €500 million ($720 million) from clients for its db Kompass Life I and II funds. But, now, huge losses are on the horizon. "At the Deutsche Bank branch, they told me it was a booming business," said a 50-year-old executive assistant who was looking to securely invest a severance payment for her retirement. Today, she is worried about her savings. In a call to the fund's public service representative, she was informed "promptly and unequivocally" that her contract also stipulated the possibility of a total loss -- a warning that's pretty well buried in the small print of the sales prospectus.

But how can that be? Returns ostensibly only depend on the life expectancy of the original policyholder, which should be a fairly simple statistical variable. Still, the fact is that, since the funds take over entire policies, they have to pay monthly premiums for the duration of each and every one of them. A life insurance policy pays out only once the insured person has died. But, until then, there are only costs. The real issue is related to the fact that the insured aren't dying as fast as they were expected to. Apparently Deutsche Bank, like many other providers, relied too much on medical experts and statistics for the United States. When Deutsche Bank launched these funds, the market was still in the grip of great euphoria. In Germany alone, investors poured about €2 billion ($2.87 billion) into such enterprises in 2004 and 2005.

But it didn't take long for disillusionment to set in. Many providers couldn't generate the yields promised in their prospectuses. For one thing, many of the insured simply lived longer than expected. For another, buying up policies became more and more expensive due to high demand. Also, a change in the law made American life insurance funds taxable in Germany for the first time. As early as 2005, the Sachsenfond, a subsidiary of the Sachsen LB, the now-dissolved bank of the state of Saxony, pulled its product from the market. But other institutions have kept on hoping and stuck with their investments. Just this year, WealthCap, for example, a subsidy of HypoVereinsbank, launched its fourth US life insurance fund after its other products beat expectations.

Even Deutsche Bank is getting back into the business, as well. In 2008, it launched a third Life Kompass fund, though it has been structured somewhat differently, which collected investor funds in two tranches, one of $100 million and the other of $144 million. Still, when it comes to the other two funds, things haven't gone so well for investors, and only the bank itself has turned a profit from them. One fund -- db Kompass Life I -- netted the bankers €32 million ($46 million). For instance, they figured on "fund structuring" fees of 3.485 percent. And the bank took 9.5 percent up front in equity capital brokerage fees. The structure of the product is so complicated that even experts don't understand it.

The Kompass Life funds were structured by London-based bankers for Deutsche Bank, who apparently put their own profit above all else. With things just too far above their heads, investors chose to simply rely on the judgment of their advisers. In essence, the lion's share of the risk was palmed off on investors, while financial managers raked in a buck. Investors in the db Kompass Life I fund financed the purchase of life insurance policies with total maturity payments of $770 million. Through the end of January 2009, a total of three policies had paid out, bringing in about €20 million ($29 million). But, as investors were tersely informed, the money was "applied to the advance payment of premiums and other costs."

At the moment, time is of the essence: The funds will reach maturity in 2015, when Deutsche Bank's London-based operation must buy back the remaining life insurance policies from investors at 80 percent of their purchase price. "Through the payment of this sum, which is considerably smaller than the maturity payments of these policies, investors would incur financial losses," the prospectus notes. But, now, investors are slowly beginning to revolt. "In what dark alleyway have my savings been hidden?" an e-mail from one investor reads. Another writes: "I now have a very bad feeling that I'll never see my €10,000 again."

One of them -- who prefers to remain anonymous -- wants to call a special shareholders' meeting to launch an independent inquiry aimed at looking into whether Deutsche Bank was negligent in how it calculated the funds' value at the time they were launched. But there's just one problem: To call such a meeting, you first have to know who to call. And the only entity that has such information -- the names and addresses of the co-investors -- is the fund administrator itself.

The anonymous investor has been pestering the fund administrator to release this information for months, but the fund has refused to do so, claiming that data-privacy protection laws don't allow it to. In the end, though, the fund sent out a letter to all the investors saying that one of the fund's investors had taken "the occasion of the fund's current economic development" to request that he be given their personal information. Dozens of co-investors then contacted the anonymous investor directly. Together, they have employed the services of a lawyer and launched a Web site. The lawyer, Karl-Georg von Ferber, agreess that the fund's prospectus spells out the investment risks rather thoroughly.

But, he argues, the document gives rise to the impression "that it's all just about statistics and actuarial mathematics." It's probable that many of the investors just took a cursory glance at the description of the highly complicated products. Soballa, the physician, for one, will admit to this. At the time, he says, he was just putting his faith in the strong reputation of his bank -- and his financial adviser. "He seemed very reliable," Soballa says. But it just might be the case that, when it came to these funds, the banker didn't really know what he was talking about.

130 comments:

Dave from Davenport
said...

Re: State Budgets

In Florida we get our proposed property tax for the upcoming year in late August. I had been waiting on mine to come to see if they would adjust the taxable value down to anything close to reality. To my surprise, they did. The new taxable value is about 60% of what is was last year and the proposed millage is pretty much the same. The county just finished a multi-million dollar sherrif's station down the road from my house, and I wonder now if they will even have the staff to open it. Almost all the county revenue in Florida comes from property tax. There is no state income tax. There has been some talk about cuts in some non-essential services at both state and county levels, but with a 60% cut in revenue, the will have to cut into the bone.

Which leads me to a somewhat different subject. Is discussion of self defense verboten on this blog? With a total breakdown in government security services implied by this kind of revenue shortfall, whatever police services are left are bound to be assigned to protect government facilites or large corporations (banks), which leaves you and me to fend for ourselves. I have been reading TAE for over a year and these comments for about 6 months and don't remember ever seeing this even mentioned. Is it just something that is assumed so it does not need to be discussed? Just curious that in all the talk about food storage, self reliance, storage of some kind of trade medium, etc., this is never mentioned.

Which leads me to a somewhat different subject. Is discussion of self defense verboten on this blog? With a total breakdown in government security services implied by this kind of revenue shortfall, whatever police services are left are bound to be assigned to protect government facilites or large corporations (banks), which leaves you and me to fend for ourselves.

In much of the world, police service is an oxymoron. Policing in unstable areas can all too easily come to mean 'organized protection racket' (quasi-official extortion licence). Protection comes only at a price, connections are everything, corruption is endemic, authority is typically abused and there is right of appeal. Abuse of power can happen at all organizational levels simultaneously.

We are nowhere near that point in general terms (yesterday's story about the fire chief shot in court notwithstanding), but a descent into the politics of the personal could take us there. Like in Russia, your property rights (or worse) could depend on how high your political 'roof' is in comparison with someone else who wants what you have.

Do you have specific strategies/techniques to empower the cognitive function in times of emotional stress?

The first step is being able to see one's emotional responses for what they are, and not assume, as most do, that the message one's emotions is sending is necessarily the right one for the circumstances. This is hard if you're used to trusting a 'gut instinct'. 'Gut instincts' can be very useful, but they can also lead you like a pied piper in very much the wrong direction.

For me, looking at my emotions 'from the outside' is something I learned on a personal level after having a nasty bought of post-natal depression. I didn't know what it was at the time. Life felt awful for several months and everything looked gray. Then one day I remember looking outside and noticing that the sun was shining. It had been shining the day before as well, but it hadn't seemed that way to me at the time.

That day I felt quite different, but I realized that nothing had materially changed. Only my mood had lifted. That made me realize to what extent our perception of reality is coloured by emotional responses to it that are independent of actual circumstances. It was something I had been studying in the abstract, but having an up-close-and-personal experience with it was a bit of an epiphany.

I started looking at my own emotional responses to all sorts of things and asking myself what messages they were sending and why. To me it was the first step in being able to interpret my own responses at more than face value, and over-ride them when necessary (sort of a subjective-versus-objective reality check as part of my decision-making process). It's always a struggle, as emotional drivers are a very powerful, very fundamental part of what it is to be human (what it is to be mammalian fact).

There will always be cognitive dissonance, but that can come to be a useful signal that one is one the right track. The right decisions are almost never the easy ones - that way lies the path of least resistance that the herd will follow. The right things to do are usually the most gut-wrenching ones.

One thing I find helps to deal with feelings of depression and/or anxiety is to spend some time grounded firmly in the 'now'. While I have always spent much of my time thinking about the past or the future, that can lead to dwelling on aspects of our predicament to the extent of mental/emotional paralysis. In contrast, choosing an activity that involves enjoying being in the moment resets the mind, whether it's feeling the warm sun on your face or listening to beautiful music or exercising or pottering around in the garden or whatever works for each individual.

Folks, we are at the end of this rope. Students are literally coming out of college with more debt than they can ever reasonably hope to amortize over their working lives, making their education a negative net equity position - that is, a guaranteed losing investment. This is out-and-out fraud committed upon our young adults by the millions each and every year, and you're a part of it.

Karl is quite right. There is no way these debts would be repayable even if the economy was not about to fall off a cliff. Taking on massive student debt is the path to indentured servitude for a whole generation of young people. It is nothing short of tragic.

If you are in a position to be making the choice now as to whether to take on masses of debt for your education, DO NOT DO IT. I recommend apprenticeships where possible, or relatively short and cheap course in pursuit of practical skills.

I doubt any of my children will ever go to university. My eldest wants to do three year college programme (college here in Canada means tech school and is much cheaper than university) while living at home. She wants to be an RMT, and could learn the skills from an existing practitioner if the formal course was not an option. As paper qualifications will matter much less than they do now, that will be fine as a back up plan. Picking up some basic nursing skills by helping a trained nurse or midwife would also be useful for her. No debt will be involved.

My middle child wants to study music at a conservatory, which will only be remotely possible if he wins a large scholarship and sings a lot of operas in order to earn extra money (he sings with a professional opera company, but chorus work is not very lucrative). If Plan A doesn't work out (as it probably won't due to time constraints on the availability of scholarships), then he will just continue with local music lessons, while doing whatever he has to to earn a crust and working his way up slowly in the local opera company. Maybe he'll end up a traveling bard rather than an opera singer, but at least people who are entertaining are less likely to starve. Again, debt will not be an option.

My youngest will be looking for an apprenticeship in mechanics, carpentry or small engine repair. She's only 13, so the details can wait.

@ Stoneleigh, Thank-you for your response to my question about the cognitive over-ride.I am reminded of a Quaker quote which I don't recall exactly advising one to still the emotions, prepare the mind. The concept of resetting the mind by here and now engaging activity is doable. I intend to start to-day, consciously...

Stoneleigh - your bout of post-partum depression may have had its roots in your nutritional status. The fetus is a very efficient parasite, taking what it needs regardless of the welfare of the host. Since omega-3 is a major building block for the central nervous system, the fetus will drain you of omega-3 to the point that it becomes depleted. Especially so, since the standard American diet is typically too low in omega-3 and too high in omega-6 (which, when to high, cancels out the benefit of omega-3). There have been studies demonstrating that a range of mental disorders can be corrected by omega-3 supplements. It takes time to rebuild after depletion, hence the tendency for PPD to drag on. The best way to get omega-3, of course, is from the oily cold water fish. However, it is equally important to avoid the sources of excess omega-6, ie most vegetable oils and the processed foods that are made with them. Stick to olive oil, canola or high-oleic safflower and butter, of course.

From my experience as a member of both the "self-defence/firearms community" as well as the "preparation/preservation community", I'm not seeing a great overlap between the two. What overlap there is tends to be largely concentrated with hunters (strictly for putting food on the table), and not a lot in the self-defence community . . . except at the fringes . . . meaning, the "hard-core survivalist crowd", which I do not consider myself a member of.

Most of the comment posters to this blog fit well within the "preparation/preservation community", not many I imagine in the "self-defence/firearms community", and don't recall seeing any in the "hard-core survivalist crowd". Hence, the lack of commentary on self-defence-related topics.

Since omega-3 is a major building block for the central nervous system, the fetus will drain you of omega-3 to the point that it becomes depleted. Especially so, since the standard American diet is typically too low in omega-3 and too high in omega-6 (which, when to high, cancels out the benefit of omega-3). There have been studies demonstrating that a range of mental disorders can be corrected by omega-3 supplements. It takes time to rebuild after depletion, hence the tendency for PPD to drag on.

Very interesting. I was vaguely aware of that, but your explanation clarifies things - thanks. Of course the standard British diet (that I was eating at the time) is crap too. I'm still dealing with the after effects of that (successfully, but Rome wasn't built in a day, or even in the 2 years I've been working on it).

I never really knew how to cook until Ilargi taught me when he moved here (he is a very good cook indeed). He's the one who got me started on P90X as well, and I haven't looked back since. I feel a million times better. (Aside to DIYer from yesterday: Even prodigious amounts of surgery wouldn't make me look like the Evony girl though.)

The best way to get omega-3, of course, is from the oily cold water fish. However, it is equally important to avoid the sources of excess omega-6, ie most vegetable oils and the processed foods that are made with them. Stick to olive oil, canola or high-oleic safflower and butter, of course.

I eat a fair amount of oily fish, and make sugar-free yoghurt with fresh fruit and flax meal for omega-3. I cook with olive oil and sometimes butter. I eat low carb, (except for whole grains) and avoid fructose wherever possible (except for fresh fruit). Fructose messes with my brain and my metabolism. As so many things have high-fructose corn syrup, I have to be quite selective. It helps a lot never eating processed food. Fructose can be hiding in lots of places though, like 'natural fruit extract' or 'natural apple extract'. Manufacturers can put that in and still call it 'no sugar added' - sigh.

That article about German Banks and American life insurance policies is very disturbing. So German Bankers are betting against American actuaries? Seems like a losing bet to me. I'm glad to hear the Germans are losing their shirts. People who try to profit from others' deaths deserve what they get.

I am interested to know what the Germans' motivations are (besides greed).

I have always considered that, if trading is allowed on life insurance policies amongst those who aren't parties to the insurance, much like default swaps may be traded on any exchange to which people aren't a party, organized murder, first of a criminal and then of an institutional nature, cannot be far behind.

One thing I find helps to deal with feelings of depression and/or anxiety is to spend some time grounded firmly in the 'now'.

Stoneleigh, that’s great advice. For those interested, literature on mindfulness (Eastern philosophy) is abundant. In the West, that technique or perspective is incorporated into the Cognitive Behavioral modality.

RE: Barofsky and the Treasury

In April, after butting heads with Mr. Barofsky, Treasury officials asked the Justice Department's Office of Legal Counsel for a ruling to clarify that Mr. Barofsky's office falls under the Treasury secretary's supervision.

It’s encouraging that Barofsky is quietly digging into what must be a mountain of data, and standing his ground. This is clearly making Geithner very nervous .

However,

"We've got a lot of work to do," Barofsky says. "We've had some significant challenges hiring. It's so highly technical and so specified, the type of people we want. And we're trying to do with a relatively modest staff of 100 to 125.

"We have to get people who can cover a lot of ground — who are really, really top-notch, high-quality individuals. And frankly, we don't have the ability to pay what the market would pay those individuals. So we also have to find the people who want to serve their country, who want to work for a greater good, which is to protect all these taxpayer dollars," he says.

There are not enough funds to adequately pay a qualified staff to investigate. What a surprise.

"I am interested to know what the Germans' motivations are (besides greed)."

The same as for Americans, British, Chinese etc. invested in the same fund or similar ones, I'd venture. People who don't work in these fields simply have very little notion of what sort of instruments can be, and are, used to set up wagers..

I bet you that your third wager that is contingent on the outcome of your first two bets exceeds the gross sum of the difference between the square root of all your bets and my bets preceding the placement of your initial second wager, which is to be payed, in part, by a pro-rated percentage of average male waistline measurements determined by Standard & Poors, if they are still in existence at such time. Thank you.

Stoneleigh,The story on omega-3 & -6 oils is complicated. Wild salmon is a terrific source of -3's, but farmed salmon is loaded with -6's. And the usefulness of flaxseed oil varies widely with an individual's ability to process it.

In other words, YMMV, so do what works for you, because you're the doctor and those M.D.'s are only consultants.

zerohedge has some great coverage on the unemployment numbers. Personally, I knew that they'd be cooked, as everyone seemed to have come back from vacation and was waiting for these numbers. Forex was flat yesterday, waiting. And the G-20 seemed to be anticipating them too (at least that was my impression).

But here's the best comment from one zerohedge poster that I've seen:

"More jobs were lost in August than in July.

From the BLS web site: the birth/death model bumped up the August jobless figure by a healthy 54%...118K jobs. Actual jobs lost was 334K"

"In my neck of the woods commercial greenhouses tend to collapse every few years under the weight of the typical wet snow as often as the weight of heating costs."

So true. It's very sad. Actually one of our neighboring greenhouse businesses just went through foreclosure because of snow damage and heating costs to their greenhouses. The bank is now sitting on a property that no one wants because it'll take an investment of $200,000 to fix the place. Awful!

"What would be especially instructive would be what mistakes you made with your design (if any ;-) ) That book I was mentioning has a curious "solar chimney" for ventilation, which I suspect is nearly as serious an issue as heating?"

Oh Dear Lord! That would be a book. There is a lot we would change with the building if we could. We also learned a valuable lesson. Never hire the kid of a friend!! (Luckily we're still good friends)

Don't get me wrong. The greenhouse works great, but there are parts of it that never worked, so we've had to jury-rig fixes. (i.e. there were shutters that were supposed to cover the glass automatically when the building got too cold that never worked)

We'd also never face a greenhouse due south in a northern climate again. Greenpa situated it as it is for good reasons, but we do loose a lot of summer light if we're not careful.

Venting is key to any greenhouse. We have venting all around the building. The roof, floor, walls, doors... We also have a heat sink built into the ground behind the building to gather heat in the summer and leech it into the greenhouse during the winter. Some of the venting goes through it, purposefully.

A glass greenhouse is going cost 3-4X what a plastic house costs. Any financial advisor will tell you that a glass house is too expensive. Ours basically told Greenpa he was nuts when he explained the building project. (Remember these are the people responsible for what's happening now)

However most of your future heating and cooling costs, sometimes we go into the greenhouse in the heat of summer to cool down, are embedded in the cost of building a glass, earth sheltered building. Also the building has to be strong to support the glass, it's not going to collapse under snow. Guess what, many other greenhouses around us are going out of business, and we're still working!

We were able to save some on the cost of the building by finding a source of commerical "odd lot" glass from unfinished projests. Our building is glazed with double-paned commercial skylight.

Neil Barofsky remains a long shot just like any and all players on the scene, but he might be the best shot there is at getting some sort of truth telling. The presence of Elizabeth Warren as TARP supervisor could be a big help. And it''s not all about money, either. You often don't so much need a brazillion dollars to discover irregularities as you need smarts and persistence. A small team can have many advantages over a larger one.

Still a long shot though, the interests are well laid out. Then again, it's time to start locking up a few hand puppets.

I really have never told you two how much I appriciate TAE. I'm not a financial whiz. You two put these issues up in a fashion that has allowed a deeper understanding on my part than otherwise.

I would love to donate to you, over and over again, but our lifestyle makes for moths in the pockets more often than not. I'm hoping to send you a Christmas care package though to express my gratitude.

For paypal-based donations, I'm not sure if there's a per transaction fee, but in any case I'm wondering if monthly/periodic or less frequent lump sum donations would be preferable. I've been doing monthly for a long time and it occurs to me I should have asked. It doesn't make much difference from my end.

I think you've come up with a fantastic educational curriculum for your children going forward.

I did my undergrad in the late 90s, and even then I couldn't fathom how people could rationalize $50k in debt for a degree that wasn't going to guarantee them an easy means of paying that debt down.

Reading the student loan articles makes me thankful my family and I were able to pay my way through my BSEE at an excellent in-state school. I've also had the good fortune of landing at an employer that paid for my MSEE.

Nuts and seeds, especially walnuts, are a good source of omega 3s as well. I eat raw almonds, walnuts, cashews, pumpkin and sunflower seeds regularly. I also grind up golden flax seeds using a coffee grinder and refrigerate enough to last us a week. We add the ground-up seeds to our morning oats at the table. (Flax seeds should not be heated since they become rancid very easily.)

I agree that omega 3s are very important for the nervous system and the brain. Unlike cow's milk, human milk is very high in omega 3s and low in protein -- just what nature intended for a human baby.

Ten, fifteen, twenty years down the road, the history books and memoirs will reveal what the current mainstream mouthpieces of recovery will not: That in the summer of 09 the U.S/World economy was hanging from a mudslide cliff by a rapidly fracturing fingernail. Only in retrospect will the incredibly dire state of current affairs be revealed, and only then if the world economy manages to extricate itself from this current pickle. Otherwise, the story will be immediately obvious as dire epoch sweeps away the false front of confidence like an enraptured Felix Ungar.

And that is the rub, the fly in the ointment of those predicting ultimate collapse. We are a society of Oscars, capable of unlimited descent into massive layers of trash and putrefaction before ever feeling the need to clean up and take out the trash. But if the time ever does arrive(doubtful) when the stench is simply too much to take, the cockroaches will have already done irreparable damage.

In the meantime, have another beer and cigar…. and throw in a brand new pile of new poker chips while you’re at it.

Karl at Market Ticker has been doing some calculations on consumer credit.

”I have often been asked what it would take to bring the consumer credit picture back into balance with incomes. My "off the cuff" estimate was that we had to take a 10% adjustment to GDP in 2000, a 20% adjustment now, and that credit would have had to contract by about 20% in 2000.This graph makes it clear - as of 2006 the answer is "roughly a 40% decrease in credit outstanding, a 40% increase in per-capita income, or any combination of the two."Of note the "correction" required was 25% in 2000. It was 40% in 2006. It is likely better than 50% now.”

We know that outstanding credit is not going to be reduced by any of those numbers even though credit card companies are withdrawing their services to consumers and charging more.

Does anyone think that consumers will willingly cut back their consumption by up to 50%?jal

This is one of the areas that scares me. As governments local and national fail; what will take their place? I remember talking to a Russian immigrant some years ago and she was complaining about the corruption there and how it holds things back. Corruption is very inefficient in my opinion as it naturally supports the status quo, regardless of what needs to be done. I know that there will always be some corruption present in even the best of systems.

One of the naiveties of many people I encounter is that they think that weakening or eliminating government will somehow save them money in the long run. Without an honest government and courts that follow the rule of the law you will inevitably end up with a pay to play or survive system that will favor the wealthy and powerful’s interests. It could be a protection racket or bribing the local official for a building permit, or having your land confiscated that someone with the right connections desires. And God help you if you are one of the undesirables i.e. race, religion, political party, etc

My experience growing up was that wealth and political connections could afford you a fair amount of protection and that was in a time that was much less corrupt than today.

To Illargi,

One of the local state employee unions is advertising on the radio, trying to drum up popular support in opposition to proposed unpaid furloughs. They really don’t get it.

Yours sounds a lot like mine, with some minor variations. Totally agree with total ban on processed foods, sparingly on the high quality animal protein (wild fish, grass-fed Akaushi beef, free range chicken and eggs), lots and lots of fresh fruit, vegetables and nuts. The nuts are great sources of fat, protein and Omega 3s, as Ahimsa noted. Result: better health, much less trash (no packaging materials), high texture and taste, more stuff for the compost bin.

It's a shame that it took 40 years for the internal contradictions in Friedman's work to begin to be widely understood. Friedman was a nice guy who grabbed on to half an idea and ran it to a half logical conclusion.

As any Libertarian today worth his salt knows, Milt was no Libertarian. I'm no Libertarian by the way. Just saying.

Milt's fame was due to his political usefulness. In his signature popular work, the Free To Choose television series, he downplayed his monetary work and pimped his anti government work. It was a beautiful piece of propaganda. It's quite fitting that as his monetary work is now being assigned to the land fill of history just as his most ardent follower has been given the reigns of the central bank. History is a great joker.

Grinding nuts into breakfast is a great idea for someone like me who doesn't really dig whole nuts. I was planning on getting a coffee grinder anyway, in order to keep whole spices, which last longer in storage. Two birds; one stone.

Stoneleigh - it's a good idea to avoid fructose as much as possible. It is becoming clearer now that, of the various forms of carbohydrate we consume, fructose is perhaps the most harmful. It is metabolized almost exclusively in the liver where it is turned primarily into VLDL (bad fat). It also leads to increased output of uric acid which causes gout and hypertension. It is not metabolized in the brain, however, so I am not sure why you would have a CNS effect, unless perhaps it's your brain speaking on behalf of your liver, telling you it is unhappy!

Funny the "security" issue should come up today. The OP is incorrect as this issue does come up from time to time, and even Stoneleigh said that she intends to get a long arm eventually (to back up her dogs). ( For those unfamiliar, a long arm is a rifle or shotgun as opposed to a pistol).

During my few days coming up in Florida before I head south, I am thinking of picking up a 9mm semiautomatic and a .22 semi rifle with telescopic sight. First for protection and the second for meat on the table if I ever return. Would keep them locked up in a hopefully secure area a few minutes by taxi from the international airport in FL that I would expect to return into. I will be commandeering my sister's FL address since I will have none to speak of outside of the virtual world, so I will also apply for a FL concealed weapons permit which are apparently very easy to obtain other than the backlog on them.

I shot competitively with a rifle as a youth (though now I couldn't see the front sight w/o my glasses) and also shot .38 revolvers but don't have much experience with semi-automatic pistols. I'm pretty much set on a 9 mm calbre. Any suggestions on make and model. Also whether to go with a belt or shoulder holster in the Florida climate and light dress? Any suggestions on the .22LR rifle or scope as well? I am thinking of going with a banana clip as opposed to a tube feed if that is available.

Any good discussion links on the topic? Actually, I am sure there are thousands.

I failed to mention this yesterday, but this story really struck me because police and firemen are usually lumped into the category of "public safety professionals".

As such, there is typically a level of courtesy, far above and beyond the courtesy extended to the public, that exists between the two professions.

If we now live in a society where police can shoot firemen in a court of law with few repercussions, what sort of treatment can members of the general public anticipate going forward?

Consider this question while digesting two additional ideas.

First, most modern police training instructs cadets to assume every member of the public is basically a potential perp. Second, note the increasing militarization of police forces, in terms of training and equipment. Body armor and automatic weapons are now widely available and liberally used by the police.

Re fructose - basically, anything sweet, unless it contains an artificial sweetener, is likely to contain fructose. Every sugar molecule is 50% fructose and the fructose is what delivers the sweetness. Since your wine contains sugar, it would be a source of fructose. In general, dry wines have about a gram of sugar per ounce, so about 1/2 gram of fructose. On the other hand there are good things in there, too, like resveratrol, so there is a trade-off in terms of harm vs benefit. I tend to err on the side of benefit, myself.

Stoneleigh (and others): One alternative to expensive American Universities is the University of Buckingham, in your UK. BUCKSIt claims to have the best student satisfaction, they should be, as they get a title in two years, even in as short time as a year and a half. It is the only fully private U. in the UK and the rates are not prohibitive. The students are mostly German and Russians, hardly any English ones -perhaps they can't stand the rants of the Vice-Chancellor!For a German CEO it makes sense. He can hardly put his son in an important position without some sort of degree, and sending him to a German University -some are free, or used to be- means four or five years of severe studies. Better send him to England, pay up, and get the boy back in two years with an English Business Degree, put him in charge of the Marketing Dept. or something.

Buckingham is a small and boring city, doesn't even have a disco, although the fleshpots of Milton Keynes and Oxford are not far away. All advantages.

Ok, ok. We got it now. The eaves are heavin' and we should all be skeered down to our dropped knickers!

And just what might you two, gent 'n lady, be tellin' us all to do about it? Should we draw'n our nickers o'er our drawers and kiss our arse goodbye? I jus' done that and it be not much ado ta help I ken tell ya!

You've all be writin' and screechin' on about how bad it will be. But y'er a little short on advice, ain't ya? Just what shall we do more 'n soilin' our drawers about it?

You all er great about doom 'n gloom but a little short on practicalities. Seems that you come up short on more than a bit in my view I can tell ya!

Damn city folk kent mer 'n more but oppen a bottle a milk ta drink it! Me - I ken milk that cow and more such thank ye!

An apple did fall on my head.It happened yesterday, quite unexpectedly. It came from the optimal ends of the earth. It is an ill omen.

From this position, the coordinates of New Zealand are close to the opposite side of the globe.

By gravitation, such an apple detaching itself from a branch in New Zealand may have arrived here on its appointed trajectory by travelling straight down projected through a tunnel in the solidified core, without stopping mid-way or oscillating inbetween both ends.

However, while suffering a severe concussion after being struck, it ocurred to us that the functional market continuum must therefore be severely curved in spatial organization and value-orientation. The incident of the maximally-misplaced apple thus revealed a striking fact.

The guilty fruit had been lifted from its proper place as by the dark gravimetric densities of an indivisible hand, launched through a mechanized maelstrom of involuntarily miscapitalized movement.

The apple's market transjectory had erroneously determined a curvature of refractive price actualisation that was not logically and fairly produced (by effectively undervalued capacity) in the localized market.

Instead it had been dissociated by the greatest possible spatial distance in buoyancy or flight, its relative supply-demand operations suffering dynamic capitalistic dilation through misalligned energy-rational boundary-configurations.

When considering causally-embedded multivariant price functions apart from linear valuations in such movements, there are evidently gravito-dynamic energy-rational implications as well as aesthetic considerations to be made.

In the case of the apple it is determined that the morally-normalised econometric curvature of the conductive market-mediumhas approached its maximally inverted symetric gradient, thus forming an inherently disasterous gravito-logistic defficiency of miscapital in the organisational superstructure.

The most amusing trolls are the ones who proclaim things that are patently, obviously at total odds with what is well documented at TAE, as Anon@5:30 amply demonstrates. At least he or she did it in entertaining style!

@ Caveman - My eccentric friend Llan has built a house with growing space ("the Gardination") included inside. He calls it the Groworld Module, and the specs he sometimes sends me are way over my head, but I thought you might be interested. He has a website:Llanscaping.org and can be contacted via that.

It is not metabolized in the brain, however, so I am not sure why you would have a CNS effect, unless perhaps it's your brain speaking on behalf of your liver, telling you it is unhappy!

The problem is that the miserable stuff (fructose) is addictive, so that if I eat it I end up craving more of it, to the point where it can be difficult to concentrate. If I don't eat it, I don't want it. I don't think it affects everyone that way though.

The people who stuff processed food full of HFCS (which seems to disable the satiety response so that people chronically overeat), can make money on the over-priced pseudo-food they sell, and then make more money selling overweight people diet products. The consumers end up miserable on both counts, as well as much poorer.

For the .22 rifle, unquestionably get a Ruger 10/22 in stainless. Stick with the quality 25 round magazines; avoid the 50 round magazines. For the 9mm, you'll have to see what fits your hand. A Glock 19 may be a good overall choice.

To anon at 5:30. There are "primers" on the top right of the page that address financial and other preparedness--but, of course, there are entire other websites dedicated to non-financial preparedness.

Since we're talking (a little bit, I suppose) about survival stuff today, a question for the board:

How useful would a grain mill be? Currently, I buy such grains as oats, hard red winter wheat, rye flakes, etc. for use in cereals, but purchase ground flour for baking bread. I guess having a grain mill would allow one to accumulate vast quantities of grain for food storage. Is this purchase as recommended, as say, the Big Berkey water filter? Thoughts welcome.

Stoneleigh - there is good evidence now that sugar is truly addictive. Bart Hoebel at Princeton has been doing research in this area and his findings are compelling. I don't think he has looked at fructose vs glucose in this respect, though. It would not surprise me if it turned out that it was the fructose. Also, regular sugar with 50% fructose is not that different from HFCS with 55%.

My 13 yo wants to study dolphins when she grows up. A BA in marine sciences then an advanced cetology degree would have been the path.

I am not sure that the chosen career field could reimburse that educational expense, assuming we could still afford the education. By then there may not even be funding to study the dolphins... let alone a clean ocean with the correct pH and bountiful food supply for the dolphins themselves to live in....

I haven't read the book but I saw Kessler interviewed and I have talked to people who have read it. My take is that he isn't brining anything particularly new or useful to the discussion and probably wouldn't be on the bestseller list if he wasn't already known from his time at the FDA. I know that sounds a bit presumptuous of me since I haven't read the book but I get tired of the same old same old when the evidence for a low-carb approach (or certainly, low-fructose) is so glaringly obvious if anyone cares to look at it.

Oh, and having just finished this, I just had to share: Paul Krugman takes up eight (!) pages in the NYTimes magazine to come to the conclusion that economists need to revise their models to include irrationality, herding behavior, and bubbles...I love it!

The story of the whiskey rebellion doesn't interest me so much as it is a reminder that a drug, whiskey alcohol, was one of the early lynch pins of the US economy. Along with that other drug, tobacco. Both even served as money on the frontier.

Apropos of nothing perhaps from some perspectives but an interesting thing to keep in mind about the roots of American culture, social and economic.

How useful would a grain mill be? Currently, I buy such grains as oats, hard red winter wheat, rye flakes, etc. for use in cereals, but purchase ground flour for baking bread. I guess having a grain mill would allow one to accumulate vast quantities of grain for food storage. Is this purchase as recommended, as say, the Big Berkey water filter?

Yes, I think a grain mill is important to have, along with some spare parts. They're not that expensive. I got mine from here.

Stoneleigh - there is good evidence now that sugar is truly addictive. Bart Hoebel at Princeton has been doing research in this area and his findings are compelling. I don't think he has looked at fructose vs glucose in this respect, though. It would not surprise me if it turned out that it was the fructose. Also, regular sugar with 50% fructose is not that different from HFCS with 55%.

I know. If I want to sweeten something (which is rare), I use dextrose (glucose) tablets. I recently ordered some in powder form from here. I'll let the board know if the order arrives as promised.

It appears that heating HFCS to only 120 degrees F leads to the creation of hydroxymethylfurfural (HMF), which has been linked to DNA damage in humans, and would therefore be potentially carcinogenic. Its breakdown products in the body appear to be even worse.

*pop* goes the Stoneleigh fantasy. Oh well, I was pretty sure from the CGI texture rendering that the Evony grrl was all style and no substance. As in, none at all. Less substance than a Bernanke proclamation.

Still, Stoneleigh, <3 <3 <3 -- I like a girl who can manage to string together a complete English sentence, eh. Or a Canuck sentence even. I'd like to meet Y'all if I'm ever in that neck o' the woods, Ilargi and the Pebbles too.

And Dr. J, thanks for the discussion of omega-3s. I had heard of them but didn't know of the relation to omega-6s. So that explains why a nice sushi meal brings a feeling of, not really euphoria, but everything is OK after. And I knew fructose was not really a good thing, but didn't know how bad it is. Thanks.

Diet advice in a financial forum, whodathunk? And other metaphysical stuff.

As a sweetener I don't care for it in coffee but in anything with a bit of acid including tea with lemon I find just fine, also I find cocoa with it is quite passable. Stuff is cheap and a little bottle will last for ever. If I add a teaspoon of sugar to the coffee with stevia it helps.

The first step is being able to see one's emotional responses for what they are, and not assume, as most do, that the message one's emotions is sending is necessarily the right one for the circumstances.

This reminds me of something CA Fitts says in regard to appropriate responses when surrounded and outnumbered by brutal injustice perpetrated by security personnel, ie, people with guns, such as what happened at Katrina. When in a Katrina-like situation, she says (IIRC), never move unexpectedly or aggresively. Check your ego and be submissive.

Reminds me of how the action hero Jack Bauer in 24 acts when "good guys with guns" come storming into a room where he's present. When they don't know who he is, he kneels on the floor with hands behind his head until they tell him to move. CA Fitts suggests that no matter how much you want to stand on your rights, or scream injustice, shut up. These people have guns and the last thing you want to do is confuse or frighten them.

Sept. 4 (Bloomberg) -- Family members of a U.S. Securities and Exchange Commission enforcement official, whose unit got an anonymous tip in 2005 suggesting Bernard Madoff may be running a Ponzi scheme, entrusted $2 million to the scam, the agency’s internal watchdog said. http://tinyurl.com/mqsbsk

The Rugers I have seen in shops recently look like they had some design changes that should fix some minor annoyances. Some don't like all the plastic on Glocks, but they can really take the abuse. Be careful with that style of safety though.

Be sure to get some training, and practice.

If I could have only one gun though, it would almost certainly be a shotgun. Very versatile they are, though they don't conceal very well.

she says (IIRC), never move unexpectedly or aggresively. Check your ego and be submissive.

Or you could take a leaf out of 'The naked Civil Servant" and play mentally deranged when confronted with harmful elements. Going doggo doesn't always work. If you aren't in a mentally deranged mood at the time maybe fall back on a bit of loud dada poetry. Worked for one poet (sorry forget his name) as they thought him deranged and let him be. If, like me, you aren't much up on dada verse, here is a dada poetry generator

My mom is a Kurzweil enthusiast (so, like many others, I have not convinced my loved ones of the impending doom), and got herself a copy of his latest book Transcend, and so I read it.

The purpose of the book is to show you how to extend your life as much as possible in the hopes you are still around when The Singularity happens (and then you can just be immortal after that). In the meantime, if you don't buy the Singularity idea, it's an extremely instructive book on health maintenance. Most of it boils down to: 1. Sugar is the devil 2. Eat vegetables 3. Exercise 4. Relax.

Apparently in an interview he has said the most important things you can do to slow aging are avoid sugar and avoid stress. Hmmm, the very two things many Western people have quite a lot of.

Anyway, the book also goes into a lot of detail about the various regular health checks you must give yourself, which was also a revelation.

Just thought I'd throw that all out there in case TAE-ers are interested!

Ilargi,I covered Krugman and his silly baloney. Too bad anyone anywhere takes him seriously. I hope you and Stoneleigh are well.

As an aside, if you want to drive yourself crazy, compare the heart disease chart with the chart of homogenized milk. Scary indeed, it seems the micells of fat from pure milk have an affinity for blood vessel walls. Glad I am lactose intolerant!

Hey getyourselfconnected I don't know about milk but how about gettingyourself some Butter .

"Heart disease was rare in America at the turn of the century. Between 1920 and 1960, the incidence of heart disease rose precipitously to become America's number one killer. During the same period butter consumption plummeted from eighteen pounds per person per year to four."

First Bank of Kansas City, Kansas City, Missouri, The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $6 million.

InBank, Oak Forest, Illinois, The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $66 million

Vantus Bank, Sioux City, Iowa The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $168 million

Platinum Community Bank, Rolling Meadows, Illinois. Platinum Community Bank is the 88th FDIC-insured institution to fail this year and the 15th in Illinois. The last bank to be closed in the state was Inbank, Oak Forest, earlier today. The FDIC estimates the cost of the failure to its Deposit Insurance Fund to be approximately $114.3 million.

First State Bank, Flagstaff, Arizona The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $47 million. Sunwest Bank's acquisition of all the deposits was the "least costly" resolution for the FDIC's DIF compared to alternatives. First State Bank is the 89th FDIC-insured institution to fail in the nation this year, and the third in Arizona. The last FDIC-insured institution closed in the state was Union Bank, National Association, Gilbert, on August 14, 2009.

@Dave from DavenportMake sure you know how to use it SAFELY and accurately and a firearm is a good freind. Speaking from experience, it will be a very sad day if you need to use it, but you MUST be able to pull the trigger if it is absolutely necessary and you MUST have the quickness of mind to be able to judge when it is absolutelty necessary. A dumb dood once pulled a gun on my martial arts master and found the muzzle at his own empty temple in less than a second.

@El GalGlock's are pretty reliable, my wife has a Glock 34 that has not failed, althogh one would prefer a shorter barrel for concealed carry. I prefer a round with more energy than a 9mm. My Kimber 38 super auto has never failed to cycle, I shoot twice every week. In a perfect world everyone would be packing a Glock 33 and no one would ever get shot.

22's are pretty much only good for small game like rabbit and bird so it depends on what game is available in your location. My wife has a cheap as chips Mossberg stainless 22 which does the job OK but has a few idiosychrocies that need to be managed. I have been advised by seasoned hunters that a .243 is the "all round" rifle for food gathering.

My father used to drag me out of bed pre-dawn to go hunting when I was a boy, half a century ago. I can tell you that a semi-automatic 12g shotgun in the hands of a competant marksman is death to just about anything that comes within 50 yards of the muzzle.

@StarcadeThe objective is to stop, not kill. Clear your head brother.

@Dr JYou sound more like a naturopath than a doctor. Omega-3's and Vitamin C are life's best medicines. Saint Mary's Thistle for the liver.

@StoneleighYes, processed food is poison.I have cured, in one session, many cases of post natal depression with psychology and hypnosis, along the lines of your personal observations. Come to think of it, some of the stuff I've done with hypnosis could be appropriated to Jesus. Homoeopathy also can work miracles here.

In regard to my astrological forecasting - indicators are tracking well (ie dreadfull) in many areas of global life but the delusional market is showing a lot of resistance to change. Shanghai is the only market tracking as I would have anticipated. Be very carefull with equities, they could drop like a bomb at any moment.

hey aren't those states rhode island, michigan, california, arizona, mentioned at the beginning of the post "states of shock". aren't those states Democrat states? errr, i mean blue states. it would seem the Obama administration is trying to california-ize the entire nation with california style budgets. the system may be broke, but lets throw more money at it. eventually it "must" get better. right?

uh, let me see here, Texas does not work like Louisiana or Tennessee or Kentucky or South Carolina etc. so why does it seem like the California model of economics will make the USA better?applying California economics to all states will not work and could in effect cause states to combine with each other and secede from the union.

Are you afraid your own biases about the coming doom may shortchange your kids' future if it doesn't pan out as you have envisioned?

I have two young ones myself and see PO, climate change, and the perils of exponential numbers. We live half the time on our family farm and the other half in a large city where they are educated. I think its best to plan for the worst and hope for the best. Both of them are being groomed for college and (hopefully) grad school.

If things swing toward the lower end of possibility at least they have both an education and skillsets to grow their own food, hunt, etc.

"Everyone knew that real firearms were made from steel and walnut. They warned us that polymer handguns ("Tupperware pistols," as some liked to call them) would quickly wear out, degrade, melt or dissolve and scoffed at the notion that plastic could be as tough as steel. Despite these dire predictions and downright hatred directed toward them, polymer-frame pistols quickly became the hottest items on the police handgun market.

And for good reason. Modern polymers provide equal, if not superior, resistance to wear, abrasion, solvents, oils and environmental extremes as steel and alloy-frame pistols. The frames can be molded into a variety of ergonomic shapes that do not require separate grip panels, permitting them to use high-capacity magazines without increasing the bulk of the grip, making them adaptable to persons with smaller hands. They are lighter than steel or alloy, which is a big plus when you have to lug one around for eight or 10 hours a day, and they have the added advantage of flexing under recoil, absorbing some of the recoil pulse so they shoot softer than heavier handgun

According to recent studies, it is estimated that more than 60 percent of American police officers now carry some sort of polymer-frame pistol. It didn't take civilian shooters long to recognize that the same features that made polymer pistols so practical for police service made them equally adaptable as home-defense, concealed carry, trail and competition handguns."

WASHINGTON, Sept 5 (Reuters) - U.S. President Barack Obama announced new measures on Saturday to encourage Americans to save more money for retirement, a move the White House said would put the economy on a stronger footing in the future.

Obama, in his weekly radio and Internet address, said the government would enact rules making it easier for small businesses to let workers automatically enroll in Individual Retirement Accounts and 401(k) retirement plans.

Payments for unused vacation time and sick leave could be converted into retirement savings under the new measures and Americans would be able to have tax refunds directly deposited into their retirement accounts or used to buy savings bonds.

The measures do not require congressional approval and most will take effect immediately.

"We have to revive this economy and rebuild it stronger than before," Obama said in the address. "And making sure that folks have the opportunity and incentive to save -- for a home or college, for retirement or a rainy day -- is essential to that effort."

Americans' widespread reliance on credit cards and failure to save are two things he has targeted as part of that effort.

"The fact is, even before this recession hit, the savings rate was essentially zero, while borrowing had risen and credit card debt had increased," Obama said.

"We cannot continue on this course. And we certainly cannot go back to an economy based on inflated profits and maxed-out credit cards."http://tinyurl.com/m7z7nq

"OK tough guys. Please enlighten us wimps how YOU have used your hardware to defend yourself in the REAL world? (Not what your friend of a friend of a friend did in a video game)

The most any of you will do is peak out a window and shoot a shadow in the back."

I am sure that the vast majority of the firearm owners on this group hope that they will never shoot another human being. Only a total sociopath would look forward to shooting another human under any circumstances. As to the past history of firearm owners on this group in the "real" world, the "real" world is about to undergo a major transformation. Adapting to this change as well as we can is the complete purpose of this site.

I have the highest respect for people who subscribe to total non-violence under any circumstances and feel that it represents the highest stages of human spiritual development.

That said, I am a rather spiritually primitive, undeveloped creature myself, and my inclination is to defend myself against sociopaths and professional criminals where ethically and legally warranted. I am sure that if it ever came to that, it would be quite emotionally traumatic.

And to all the "Rambo's" out there, thanks for the advice. It has been jotted down and duly noted. The Ruger 10/22 stainless seems to have universal acclaim and the 9mm will be a choice between a Sig and a Glock.

For any interested in my personal story, I leave the "American Paradise" after 13 years of residency tomorrow and expect to be in Oaxaca about Sept 15.

--it may be a good idea to have a rifle and handgun that use the same munitions.--

If Way out in the boonies a modern bow/crossbow is better for poaching. The zombie threat is vastly overrated. It is Big Brother out to steal your kibbles and bits you really need to worry about. Don't expect kunstler's quaint anarchy in your lifetime. Your only hope is to shut up and hide what you have from your closest friends and family (even SO) as much as possible (if they don't know what you have, the sharing can be on your terms)

It's really not that great an idea. A handgun is for protection against people at short range, usually less than 35 meters. Most calibers for handguns have a much higher trajectory than center fire rifle calibers. As you have gathered, I am getting a 9mm. It has become the most common handgun calibre though some want something with even more stopping power. It is, however, more powerful than the old revolver standard, the .38 special.

As to rifles, you have a choice of .22LR or a center fire. Probably the best all round center fire is the .243. However, TTBOMK no handgun is chambered for the .243 or any other larger centerfire rifle cartridges., mainly because these cartridges are shouldered (meaning that the powder reservoir is of a wider diameter than the bullet). Pistol cartridges are not shouldered. The .22LR is not really adequate for hunting larger game, such as deer. However, in a survival pinch at ranges less than 100 meters it can do the job, particularly if it is a semi-automatic with a good scope, and you are prepared to track the blood. The advantage to .22LR is they are universal, cheap as dirt, and small to store.

A .22LR pistol is really inadequate for protection unless you are James Bond, who (fictionally) had a .25, a similar calibre. In summary, get two different calibers for a handgun and a rifle.

For an accurate, scientific assessment of the healthiest 'anti-inflamation' diet look at:

www.drweil.com

His credentials are hugely impressive (he is very famous for a reason). His books are wonderful.

His anti-inflamatory diet pyramid can be accessed on his websight. It works and is in sinc with the latest scientific truths - NOT colored by people's personal preferences - the unknown, unheard of. (Quite sure Dr. J just loves his butter! despite being the fact that it is full of saturated fat and cholesterol).

Recommended reading would be 'the China Study' by T. Colin Campbell as well as books by Dr. Andrew Weil.

Common ammunition type dictates the gun to have; can't get the bullets, gun might as well be a badly designed rock. Ammunition shortages is an easy avenue for government to defang the public weekend warriors.

El Galileo - Good luck! Maybe you should talk to the Japanese FL about this... "It was a very beautiful place and it was really green."

board - As you know I'm sure, no weapon will defend against a gang or organized power, forget it, but for a more likely personal scenario... A great survival weapon generally (food, self-defense--God forbid) is the Savage model 24.

VK - Is this for real? Venus! -- "It was a very beautiful place and it was really green."

Another vote for Ruger if you are interested in a 9mm. The Sigs aren't that great and they have a polymer frame(versus metal).

So what?

Meh, just a preference. A lightweight firearm has some advantages, but a light, high caliber firearm takes strength to control the powerful recoil. A smaller, heavier model is easier for most women to handle.

A .22LR pistol is really inadequate for protection unless you are James Bond, who (fictionally) had a .25, a similar calibre.

El G, you asked about a 22LR (thought you meant pistol) and I respectfully disagree that it is inadequate for protection. At any rate, you seem to have a strong knowledge base on the matter.

A firearm is a personal choice. Anyone interested is advised to consult an expert and purchase based on your needs (purpose) and abilities.

Funny thing - I go to 3 or 4 scientific meetings every year where the cutting edge research is discussed and I never run into Dr. Andrew Weil or Colin Campbell. The fact is that anyone who still thinks that cholesterol and saturated fat are the source of our health problems are not on the cutting edge. On the other hand, once you have established a reputation (and comfortable life and significant income) touting those ideas, it's going to be hard to reverse position without looking like a complete idiot.

PARIS, Sept 5 (Reuters) - French oil group Total has moved expatriate staff and their families from Gabon's industry hub Port Gentil to the capital Libreville because of post-election violence, the company said on Saturday. Port Gentil has been hit by riots, looting and attacks on Total facilities and the French consulate since Ali Ben Bongo was declared the winner on Thursday of a presidential election denounced as fraudulent by opposition leaders.Leading opposition figures have said they would mount a legal challenge to the victory of Ben Bongo, son of the late president Omar Bongo, who ruled the Central African oil exporter for 41 years until his death in June.Protesters burnt down a sports and social club owned by Total in Port Gentil overnight, a spokeswoman at the oil company's offices in Paris said, adding that no one was injured in the fire.French state radio station France Info reported two people had been killed during the night in the city, where looting broke out and protesters torched cars and buildings.The radio station quoted Gabon's Interior Minister Jean-Francois Ndongou as saying the dead were looters who were shot by a house owner."Some Total employees and their families have been transferred from Port Gentil to Libreville in a temporary move for their safety," the Total spokeswoman in Paris said.http://tinyurl.com/m59vqa

One of the next books on my reading list is The Great Cholesterol Con by Dr Malcolm Kendrick. It looks interesting, particular the indictment of big pharma.

I don't go out of my way to eat red meat and butter (I prefer fish and olive oil), by I don't really try to avoid them either. Eating a low fat but high carb diet for a long time took me somewhere I wasn't happy being. I am vastly healthier now, and with far more energy.

We're spending this weekend loading square bails on a haywain and then loading them into the haymow by hand (2-3 wagon loads, piled 9 bails high), so it's just as well I'm fit. I'll still be stiff tomorrow because we're talking about moving literally tons of hay (probably 600 bails at 70lbs per bail), but I can live with stiffness from doing something useful.

You come from the old school where doctors had 5 minutes of nutritional training at medical school.

Let the readers check out Dr. Weil at Wilkipedia and his beautiful informative websight.

As well as Dr. Dean Ornish who you probably haven't heard of either? President and founder of the non profit Preventative Medical Research Institute in Calif. as well as Clinical Professor of medicine at the U. of Calif in San Fran. He has reversed thousands of cases of heart disease thru his vegetarian diet and written many bestsellersBy the way, the Japanese who are the longest loved people on the planet eat mainly fish NOT meat.

Mediterranean Diet. Ever heard of that?

The research is there. You don't like the big names (who simply started out with BIG credentials) who have made a name for themselves because you are not one of them? As I said, sounds like sour grapes.

I think of it as diesel vs gasoline. When there is serious work to be done, you want an oil-burner. No need to avoid red meat or butter, especially if you are doing a lot of physical work. In the early days, this country was traversed by the coureur de bois who pretty much ate nothing but pemican which was 15% red meat and 85% buffalo fat.

Recent literature tells us that eating a high saturated fat diet, even without all that exercise, yields improved lipids and other metabolic and inflammatory markers, as long as you significantly restrict carbs. It appears that removing carbs allows the body to burn off the fats more efficiently. The evidence is increasingly pointing at carbs as the culprit when it comes to our obesity and chronic disease problems.

All that to say that it sounds like you are on the right track. Why am I not surprised?

Stoneleigh: " but I can live with stiffness from doing something useful."

:-) yeah, but it still hurts.

One of my consistent complaints is that on this farm, at least, the annual round of work just never seems to be complementary, one task to another.

By which I mean, whatever heavy chore I'm doing right now, I'm not in shape for. After a week; I'm in shape for this job; but there are only 2 days left of it. Then it's on to the next task- for which, I'm out of shape. ad infinitum.

Best strategy for getting out of this pickle seems to be- have kids, and make them do the work.

FB: Why not have two calibers and be twice as likely to come across ammunition? And a carbine in a pistol caliber is more effective than a pistol, but still much less effective than a rife caliber.

A Ruger Mini 30 stainless/polymer in 7.62x39 with high capacity magazines put away might be a nice choice. It would store well for those who do not actively maintain their guns. It would work well for self defense, and would be sufficient for light (deer and under) hunting. They and their magazines are not easy to find, so it may take a little shopping around.

That and a Glock 17 or 19 (9mm). The .45 is a better round, but ammunition availability would be higher for the 9mm.

Emma: the .22 can be lethal, but lacks the size and energy to stun, and has very little penetration. Google "Ayoob" and "one shot stop", and then google "box of truth".

Rambolina: Your question is stupid. No rational person wants to hurt another human being, but every rational person must be prepared to protect those they love from irrational human beings. It's been that way for as long as humans have been alive.

Greenpa,I use the same idea...people have seen me armed here.I rarely have visitors after dark.Geese,Guinea hens and a loud dog area good thing,as well as 6' wove-wire w/2wire electric outside.I got tired of coyote,raccoon,cougars and such coming by my place for a snack..

Going into residences in this area is suicidal.EVERYONE has as many guns as they want.I expect to see a lot of stupids get holes in themselves finding out.

"I'll still be stiff tomorrow because we're talking about moving literally tons of hay (probably 600 bails at 70lbs per bail), but I can live with stiffness from doing something useful."

Repetetive farm work can damage your elbows and wrists if not lifting carefully. I was into serious weight training from my early twenties to early forties with no injuries at all until I became a "weekend farmer". My elbows, knees, wrists all started to go and had to give up the weights completely for several years. I have resumed hitting the weights during the winter months, but at a much reduced level.

"...We're spending this weekend loading square bails on a haywain and then loading them into the haymow by hand (2-3 wagon loads, piled 9 bails high), ..."

Damn! Stonelady, how can you do all that? Around here that's called "making hay" and it's the men doing it, younger ones at that. 60-70 lb bales get heavy real fast!

As to showing your armed state, yes, there's a time and a good reason for that, and also a time to conceal. Lots of common sense needed here, and especially too with the safety of those living on the premises in mind! (Kids, etc.)

I keep saying it's all about balance, because that's what I truly believe.

"Repetetive farm work can damage your elbows and wrists if not lifting carefully."

so so true. Be careful not to overdo.

And even careful lifting may not be enough- when we were building the Little House, I spent a lot of time with an Alaska Mill cutting boards from big trees, for interior paneling, cupboards, etc.

Once, I had a massive log to move; just 6 inches or so, so the saw could travel. Was cutting 12" hardwood boards. So I very very carefully set my feet; put my back in the right place, and heaved away. (The alternative was to go get help.)

Didn't hurt my back a bit. But. I had neuralgia in both arms for 3 years- the log was so heavy it stretched my arms, even though they were carefully tensed so as not to hurt muscles or joints- and it stretched the nerves up and down the arms.

Nerves are not stretchy. Took the docs a while to figure it out.

Basic rule; when your body is saying - "that's really starting to hurt" - you need to really think about quitting work for the day. The cost of overdoing can be weeks, months or years of healing time needed.

With me it was moving boulders. Putting on a human bulldozer act. I also harvest TONS of seaweed using a muckfork to load it on a cart which is brutally hard on the wrists. (Much heavier than hay)Digging postholes in stony clay using a heavy iron rod (being a human jackhammer (or jack*** ;) )wrecked my elbows.

The end result was losing close to 50 lbs of muscle in 2 years and having to deal with concerned or pitying looks of everyone I knew thinking I was dying.

"Didn't hurt my back a bit. But. I had neuralgia in both arms for 3 years- the log was so heavy it Nerves are not stretchy. Took the docs a while to figure it out."

I had never heard of neuralgia. My doc is an old british boarding school type who insists if it's not crooked or falling off, it's nothing that fresh air and gruel won't cure.

Nothing to do with nastiness. You just can't handle the truth. You are jealous of people who have made a name for themselves. Can I look you up in wilkipedia and read about your credentials? I think not.

When you have the thousands of research studies to back your ridiculous claims, then I'd be interested in listening. Until then...you are a nobody with a big ego making false claims which endanger people's health.

Living a conscious life in thought and actions (including what you eat) does mean squat.If I am an obese slob who doesen't care about anybody or anything then that not only impacts me but those around me.I choose to be thin, fit and eat heathy. I have a healthy lifestyle which improves my quality/length of life and impacts those around me.